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UK prompt gas drops on milder weather, good supply

Tue, 24th Jan 2012 11:28


By Henning Gloystein

LONDON, Jan 24 (Reuters) - UK prompt gas prices
dropped on Tuesday as healthy supply and moderate demand created a balanced supply chain and prices further out on the curve were pushed up on a tightening outlook for liquefied natural gas (LNG) shipments to Britain.

At 308.6 million cubic metres (mcm), UK gas demand was around 26.5 mcm below the seasonal norm on Tuesday, according to National Grid data.

At the same time, expected flows of over 311 mcm mean that the system would be 2.5 mcm oversupplied.



Within-day gas prices were trading around 53.60 pence per therm at 1030 GMT, down 0.1 pence since Monday afternoon, and gas for next day delivery was down 0.35 pence to 53.65 pence

'Consumption is a strong bearish signal today (and) the current within-day price suggests a substantial drop in the day-ahead price,' analysts at Point Carbon said, adding that its price expectation was between 52.50 and 53.90 pence per therm.

The excess supplies could mean that some gas will be injected into storage.

UK gas storage sites were filled by 80.34 percent on Monday, compared with a European average of 69.75 percent, according to data from Gas Infrastructure Europe.

Further out on the curve, however, the picture was more bullish.

Although prices did dip from their 53 pence a therm high on Monday, the NBP summer 2012 gas contract remained relatively high at 52.80 pence a therm.

This compared with below 51 pence a week ago.

Traders said that the recent price rise in the forward curve was a result of an expectation of lower LNG gas supplies from Europe.

Barclays Capital and Bernstein Research both said in research notes this month that they expected Europe's gas markets to tighten in 2012 as booming Asian LNG demand would drain Europe of Qatari supplies.

Despite this outlook, however, the contract remains within a downtrend that has been in place since it last reached 68.80 pence per therm in late summer last year, and the product has shed some 22.5 percent in value since then.



WEATHER

The UK's Met Office said that it expected midday temperatures between Tuesday and Wednesday to rise from a range of 2-10 degrees Celsius on Tuesday to 8-11 degrees on Wednesday.

In its late-January to early-February forecast, the UK's Met Office said that temperatures will likely remain at average levels, with a risk of colder weather towards the end of the period.

However, Point Carbon and Weather Services International (WSI) said that they expected the UK to see slightly cooler than average temperatures in February.



POWER

In Britain's power market, prices for baseload (24 hours) delivery on Wednesday fell 20 pounds per megawatt-hour (MWh) to 41.80 pounds a MWh, in line with movements in the prompt gas market.





(Reporting by Henning Gloystein)

(henning.gloystein@thomsonreuters.com)(+44 0 207 542 6659)

COPYRIGHT
Copyright Thomson Reuters 2012. All rights reserved.
The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.




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