Coronavirus weighs on British gas demand, Day-ahead

LONDON (ICIS)–The NBP Day-ahead natural gas contract has lost more than 20% since 16 March, the date the UK government announced measures to stop the spread of the coronavirus.

Demand from the power sector has declined in the past two weeks as more businesses, airports and schools have closed.

Gas use for electricity generation fell by 16% during week 12, with local distribution zone (LDZ) demand, which is primarily domestic, also down by 6%.

In week 13 the declines continued as stricter lockdown measures were enforced, pulling LDZ demand 16% below the March five-year average.

The highest fall was from the power sector, with demand in week 13 dropping by 29% against the five-year average for the month.

Initially losses to the Day-ahead were a result of higher renewable output pushing down gas-fired generation.

Then on 26 March wind-farm output plummeted but demand from gas-fired power stations remained low.

That session the Day-ahead fell by 11% from the previous close and slipped below 20p/th.

The losses on 26 March were exacerbated by forecasts of approaching warmer weather, which also pulled down the rest of the prompt.

INDUSTRIAL OFFTAKE REMAINS HIGH

Industrial gas demand, although only around 5% of British gas use, has remained consistent and was actually above the five-year average during weeks 12 and 13.

One trader suggested this was likely because factories and production lines were working at full capacity while they still can.

In the coming weeks this is likely to change to the shutdown measures.

FRONT MONTH IMPACT

The impact of a long-term lockdown has also dragged the NBP front month to the lowest price since 2007 as traders expect demand to fall below normal.

There was further pressure on 25 March as LNG cargoes were diverted from India as a 21-day lockdown was imposed.

The changes to Asian demand meant the East Asia Index (EAX) made the sharpest drop since June 2018.

The price fall and reduced Asian LNG demand means further cargoes could be absorbed by European hubs, increasing supply at times of unprecedented low demand.