Pipeline supply balances LNG shortfall at NBP amid cold weather bull run

Author: Jake Stones

2021/01/12

LONDON (ICIS)--Norwegian and interconnector flows into the UK rose by 1.6 billion cubic metres (bcm) year on year between 1-11 January as shippers targeted the NBP to meet soaring demand.

Between 1-11 January 2021 colder temperatures and low wind increased total gas demand by 1.1 bcm compared to the same time in 2020.

Meanwhile LNG sendout has plummeted, falling 0.5bcm compared to 2020 levels. This followed price spikes to the Asian LNG market, which has drawn European cargoes.

As a result, the NBP rocketed to encourage imports from Norway and along Britain’s two interconnectors, the BBL pipeline which connects the Netherlands and Britain, and the Interconnector, which links to Belgium.

Price strength at the NBP will depend heavily on colder weather across the rest of January-February as new supply sources have balanced reduced LNG.

PRICE CLIMB

The Day-ahead contract closed at 59.7p/th on 4 January but rallied towards the end of week 1 as temperatures dropped. As of 15:00 London time on 12 January the contract was trading at 78p/th, 10.5p/th above 11 January’s closing price.

Traders believed the 12 January gains were excessive, going way above market expectations. “I get pricing risk in, but this is bigger,” one trader said when talking about potential cold-weather related demand in February. They continued to say that the climb “was not based on anything” suggesting that a retracement could come in approaching sessions.

BEYOND 12 JANUARY

MetDesk forecasts showed below-average temperatures are expected for week 3, potentially dropping 5°C below normal.

However, the forecaster noted that week 3 temperatures could revise upwards, which would reduce heating-related demand and pressure prices.
Further along, low LNG supply could mitigate the price impact of falling demand.

The ICIS East Asia Index (EAX) spot LNG price for February 2021 remains well-above the NBP and the Dutch TTF, supporting cargoes redirecting from Europe into next month.

This means the NBP Day-ahead will need to hold a premium of 3.28p/th above the TTF and 3.54p/th above the Belgian Zeebrugge hubs in order to cover the National Grid entry fees and pipeline commodity charges in February.

Currently 21.3 million cubic metres (mcm)/day is booked on the Interconnector for February, while 38.2mcm/day is booked on the BBL pipeline, according to European TSO ENTSOG.

If shippers need to book additional monthly capacity for February and then flow gas to the NBP, the premium would need to be 5.54p/th above the Zeebrugge hub and 5.95p/th above the TTF to cover the full route costs.

As of 11 January the NBP February ’21 premium was 8.179p/th above the TTF and 6.8p/th above Zeebrugge.