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U.K. Gas Rises in Longest Streak in Year on Cold, Norway

U.K. natural gas for next-month delivery rose for a sixth day, the longest such streak since December, amid forecasts for colder weather and continued Norwegian outages.

Gas for front-month delivery advanced as much as 2.4 percent on the ICE Futures Europe exchange in London. The December contract expires on Nov. 27. First-quarter fuel climbed to the highest level in almost a month on ICE, also advancing for a sixth day.

Temperatures in the U.K., where gas is mainly used for heating, are set to be 1.6 degrees Celsius (2.9 degrees Fahrenheit) below seasonal norms next week, according to a WSI Corp. forecast using the GFS model on Bloomberg. Supply from the Troll and Skarv fields in Norway remain reduced as outages continued, dragging up the curve with the prompt prices, according to Trevor Sikorski, head of natural gas, coal and carbon at Energy Aspects Ltd.

“The disruptions at Troll and Skarv have meant that storage withdrawals have had to increase in Europe and this then puts some more risk premium onto the later months of the winter,” Sikorski said by e-mail. “Also, the early December forecasts are for colder than normal weather and that will help stimulate a bit more buying.”

Front-month gas rose as high as 57.45 pence a therm ($9 a million British thermal units) and traded at 57.37 pence by 10:09 a.m. London time on ICE. The volume of all futures traded was more than double the 100-day average for the time of day. First-quarter gas gained as much as 1.8 percent to 58.05 pence a therm, the highest since Oct. 29, before trading at 58 pence.

Colder weather-

Average temperatures in the U.K. are forecast at 4.3 degrees Celsius next week, compared with a seasonal norm of 5.9 degrees, according to the WSI data. Temperatures will be below norms today and tomorrow, according to the forecast.

Fighting in Ukraine, a key transit route for Russian gas to the European Union, showed no signs of ending, with more than 4,300 people killed during the conflict. The European Union and the U.S. accuse Russia of not abiding by a September truce signed in Minsk, Belarus, and Ukraine says Russian troops and vehicles continue to cross the frontier. Russia denies it’s fomenting the war.

“Some geopolitical uncertainty along with cooler forecasts for this week is set to support system demand,” Nick Campbell, energy risk manager at Inspired Energy Solutions, said by e-mail. “Combined with unplanned outages affecting Norwegian flows” that has added support to near-term prices.

There will be 315 million cubic meters of gas in the nation’s pipelines at 6 a.m. London time tomorrow, 30 million less than at the start of today, data from U.K. grid operator National Grid Plc show. Demand is forecast at 292 million cubic meters in the 24 hours through 6 a.m. London time tomorrow, 23 million cubic meters more than seasonal norms, grid data show.

Spot Gas-

Skarv will cut output by 5.9 million cubic meters a day today, with the reduction due to end tomorrow, according to Gassco AS, the Norwegian gas network operator. The outage at Troll is set to last to Dec. 11, cutting supply by 11.7 million cubic meters a day, according to Gassco. Norway is the U.K.’s biggest foreign supplier.

Day-ahead gas on the National Balancing Point advanced 3 percent to 57.95 pence a therm, while the same-day contract gained 3 percent to 57.95 pence, according to broker data compiled by Bloomberg.

Gas use in power generation was at 41 percent of the total mix, compared with 33 percent for coal and 12 percent for nuclear, according to grid data. EDF restarted two reactors, unit 2 at Heysham 1 and unit 2 at Hartlepool power station after completing inspection checks.

‘Bearish Fundamentals-’

Supply remains ample throughout Europe even with increased withdrawals, with storages 91 percent full as of yesterday, data from Gas Infrastructure Europe showed. Three liquefied natural gas tankers are set to arrive in the U.K. this week after the Umm Slal docked at South Hook yesterday, port and ship-tracking data on Bloomberg show.

“There are still substantial bearish fundamentals out there including very high storage levels, continued LNG arrivals and expectation of milder weather to return after this week,” Campbell said.

Societe Generale SA cut its 2015 U.K. gas price forecast to 54 pence a therm from 56 pence a therm due to a decline in oil prices. Brent dropped 25 percent this year.

Published on:
November 24, 2014
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