Rough news likely to have limited impact at NBP

NBP winter contracts have been volatile this year, following several announcements from Centrica Storage around the operating status of long-range facility Rough.

The site is Britain’s only seasonal store and comprises about 70% of the country’s storage capacity.

A recent announcement of some availability this winter led to losses on contracts that had previously been buoyed by the Rough outage, but the lows seen at the start of the year are unlikely to return.

Initial upside

Centrica originally began testing well integrity at Rough in March, although at the time this had little impact on NBP far curve prices.

Europe was coming to the end of a mild winter of low consumption and stocks were relatively full compared to a colder year.

Weak demand and low oil prices meant the NBP was in a downward trend and the news initially had little impact.

Far curve contracts began to move up again in April, which traders said was connected to gains on Brent crude futures, rather than a shift in fundamentals.

During that month the NBP Winter ’16 product moved up by 2.5p/th to 35.463p/th, with Q1 ’16, traditionally the highest demand period, gaining a similar 2.525p/th and ending April at 36.738p/th.

On 22 June the operator announced further restrictions at Rough, indicating that injections and withdrawals would not be available for 42 days.

This spooked the market far more than previous statements and at the same stage in 2015 daily injections at the facility were already the norm, leading to gains on the contracts just mentioned of over 3p/th.

The biggest shock came on 15 July, when the operator said Rough would be out for the entire gas winter. On that session the front winter moved up by 3.2p/th, with the NBP Q1 ’16 jumping 3.675p/th day on day.

The NBP Winter ’16 closed at 46.65p/th on 15 July, up by 13p/th compared to the opening session of 2016, although it did drift down in the weeks that followed.

Curve downside and winter supply

On Monday 22 August Centrica indicated that 20 of 30 wells should are expected to be available for withdrawal from 1 November, creating pressure on the far curve.

The NBP Winter ’16 lost 1.063p/th to close at 40.758p/th, with the Q1 ’16 dropping by 1.525p/th to 42.575p/th. Although these prices are down significantly compared to the highs in mid-July, they are still up compared to early 2016 and are unlikely to come down substantially.

System operator National Grid data shows that Rough has 1.26 billion cubic metres (bcm) of gas in store, whereas at the start of November last year the volume was 3.73bcm.

Between 1 November 2015 and the end of the gas winter, Rough accounted for about 17 million cubic metres (mcm) per day of British supply.

This winter the maximum average will be 8mcm/day, or 2mcm/day more than Centrica indicated could be possible previously (see ESGM 4 August 2016).

The volume may increase if injections become available, although so far there is no sign this will happen.

During the last gas winter withdrawals from Rough stepped up in the first quarter, with about 700mcm taken out in the months of November and December.

If a similar pattern emerged this year, Rough would have just 560mcm in store by 1 January 2017 and this would likely create a lot of supply uncertainty, particularly if it is cold.

In the first quarter of 2016, 2.42bcm was used from the site, almost double the volume currently held in store.

The announcement that some Rough capacity will be available this gas winter was bearish for NBP winter prices, but the reality is the volume available is negligible in comparison to a normal year. ben.samuel@icis.com