Updated: European prompt rockets as traders scramble for gas

23 February 2018 11:58 Source:ICIS

The below article was updated in paragraphs 12 and 13 to include electricity market impact


A buying frenzy ahead of a sharp drop in temperatures pushed European Day-ahead gas contracts over 15% higher on Friday morning.

The NBP Day-ahead contract began trading 6.625p/th higher than Thursday’s 16:30 London time assessment, before rising another 10.00p/th to 78.50p/th by 09:00. The contract rose and fell in increments of 0.50p/th and 1.00p/th throughout the morning, eventually dropping to 72.0p/th by 11:00.

The Dutch Day-ahead reached €26.163/MWh at 11:00, over 40% higher than its close one week earlier.

Prompt products across the European gas market have surged through the week beginning on Monday, as traders scrambled to secure volumes ahead of a cold snap.

New forecasts from WSI on Friday showed temperatures plummeting through Friday and the weekend.

By Monday temperatures will drop below -5°C in Britain and -10°C in parts of Germany with wind chill. Temperatures across the majority of the continent will remain between 6-16°C below seasonal norms from 26 February-2 March.

Shippers will draw heavily on storage through the cold spell, as imports and domestic production prove insufficient to meet end-user demand. A sustained period of below-average temperatures could push European stocks close to zero by the end of March.

In Britain the closure of the Rough facility means total stocks are less than a tenth of German, and less than a fifth of Dutch inventories. British shippers will draw heavily from mainland Europe from the 74mcm/day Interconnector and 48mcm/day BBL pipelines.

NBP traders were without key fundamental data from system operator National Grid. Demand estimates out to Tuesday had not been updated since Wednesday due to a “Disaster Recovery exercise,” National Grid told ICIS. Data was not expected to be populated until midday on Friday.

Sharp gains in the value of gas have slashed the profitability of CCGT plants, bringing more coal-fired units into the UK’s generation mix. Coal was meeting almost 20% of power demand on Friday morning.

The front-month clean dark spread – which indicates the notional profitability of coal-burn – suggests this trend could continue into March.

Power markets were also bid aggressively higher: “The market was panicking,” one source at a continental trading house said, referencing next week Italian and Belgian power contracts as particularly bullish.

The bullishness on the NBP market fed through to UK power, with the Week 9 Baseload trading at an 11% premium to Thursday’s close. The Day-ahead Baseload for Monday delivery was also trading at its highest since the 12 December when the market had to deal with dual supply disruption caused by the Forties Pipeline System outage and Baumgarten gas hub explosion.

Europe is unlikely to entice any spot LNG cargoes to the market due to higher priced markets elsewhere. Spot East-Asian (EAX) LNG for delivery in the second half of March was over $3.00/MMBtu higher than NBP March ’18 on Friday morning. thomas.rodgers@icis.com, christopher.somers@icis.com and henry.evans@icis.com

By Thomas Rodgers