Gas traders buy up WDNW ahead of cold snap

An incoming cold snap sent British natural gas prices for delivery in week 9 soaring on Wednesday.

Brokered transactions seen by ICIS indicated the NBP contract for delivery during working days next week (WDNW) dealt at 63.75p/th (€24.678/MWh), 17% higher than its first trade on Monday morning. This was 7.44p/th (€2.88/MWh) above the equivalent Dutch TTF product.

Forecasts for a sustained period of cold weather have pushed gas and power prices higher across European markets since Monday. Traders have bought up contracts for delivery over the remainder of February and into March in order to secure volumes for end users.

High pressure over Scandinavia “will drive a bitterly cold Arctic air mas over Europe and temperatures will plummet,” meteorologist WSI said on Wednesday morning. Wind chill temperatures are due to range from 0°C to -13°C in Britain, France, Germany and the Netherlands.

Britain’s lack of storage capacity, following the demise of the Rough site in 2017, makes the NBP more exposed to cold snaps than other European markets.

While British stores are around 60% full, inventory levels are dwarfed by other markets. Total gas stocks in Britain are less than a tenth of German inventories and less than a fifth of those in the Netherlands.

Low stocks make Britain heavily reliant on Belgian and Dutch interconnector pipelines in times of peak demand. British shippers need to compete with buyers in mainland Europe to secure imports, incurring higher prices as they pay the necessary costs to ship the gas into Britain.

Combined-cycle gas turbine (CCGT) plant operators in Britain would be faced with higher costs in the event of a cold snap. Gas shippers obliged to meet end-user demand will battle with generators to secure volumes.

But weather forecasts carry a lot of uncertainty, in particular those beyond five days.

As a result, volatility is likely to strengthen regardless of how temperatures outturn.

“I think the risk that the market has priced in is about right,” one NBP trader said.

However, the source added that prompt prices could easily drift lower or spike higher based on how temperatures perform versus current expectations.

£1.00/th Day-ahead?

Some longer-term forecasts have suggested there could be widespread and unseasonable cold across Europe through March and into April.

“You can’t forecast [months in advance] but I’d say it’s more likely to stay colder for longer than it is to go above seasonal norms,” one gas and power utility trader said.

The prospect of a late-winter cold spell has invoked memories of March 2013 for some participants. The NBP Day-ahead rocketed above £1.00/th in what turned out to be the coldest March in over 40 years.

Such extreme prices are unlikely unless supply infrastructure also fails, one market participant said. “You need an interconnector to fail or for some Norwegian production to go offline in order to go that high,” he added. thomas.rodgers@icis.com