May 15 (Bloomberg) -- U.K. natural gas fell to the lowest level in more than three years as weather forecasts for Europe trended warmer, cutting demand for the fuel used in heating.
Front-month gas in the U.K., Europe’s biggest market, fell as much as 1.7 percent on the ICE Futures Europe exchange in London to the lowest level since 2010. Temperatures will be “much to strongly” above normal in central and northern Europe as well as the U.K. with “near-record low” heating demand expected in six to 10 days, MDA Weather Services said today in an e-mailed report.
U.K. gas dropped 35 percent in 2014 as Europe’s mildest winter in seven years left the region’s storage more than half full. Traders are betting a price dispute between Ukraine and Russia won’t last long enough to disrupt supplies to the continent as in 2009. Russian President Vladimir Putin said today OAO Gazprom will only supply paid-for gas from June 1 to Ukraine, which carries about 15 percent of Europe’s needs.
“Above-seasonal temperatures, which imply lower natural gas demand, are definitely weighing on NBP prices,” Lysu Paez-Cortez, an analyst at Natixis SA in Paris, said today by e-mail, referring to the U.K.’s National Balancing Point hub. “Lower demand and the current elevated natural gas stock volumes are offsetting any price rise potential related to the geopolitical tensions between Russia and Ukraine.”
U.K. front-month gas fell to 44.47 pence a therm ($7.47 a million British thermal units) on ICE, the lowest since Sept. 28, 2010 before settling at 44.75 pence. The day-ahead contract lost as much as 2 percent to 45 percent a therm, the lowest since Oct. 3, 2011, broker data showed. ICE trading volumes were 31 percent higher than the average of the past 100 days for this time of day, according to data compiles by Bloomberg.
Demand from industrial, commercial and residential gas users tomorrow is forecast at 80.6 million cubic meters, down from a previous estimate of 83.4 million earlier today and compared with last year’s 120 million, according to Bloomberg’s gas model. Total usage, including power generation, storage and exports, is seen at 216 million cubic meters, National Grid Plc data showed.
Average U.K. temperatures will be 14.2 degrees Celsius (57 Fahrenheit) tomorrow, compared with a seasonal norm of 12 degrees, according to WSI Corp. data using the GFS model at 3:39 p.m. in London. Low pressure from the west will favor above-normal temperatures in the U.K. in the next 5 days, forecasts MDA Weather Services in in Gaithersburg, Maryland.
“Demand for the coming days should ease,” Trevor Sikorski, head of natural gas, coal & carbon at Energy Aspects Ltd., said by e-mail today, commenting on U.K. gas. “It is largely due to the weather looking nice and warm.”
Flows into the U.K. system were at 218 million cubic meters today, in line with the 10-day average of 216 million cubic meters. Exports to Belgium were nominated at 33.5 million cubic meters today, up from 30.9 million cubic meters yesterday, the highest level since July 6, 2013, according to data from Interconnector (U.K.) Ltd.
Gas prices in Belgium are above those in the U.K. for a third day, attracting British exports. Day-ahead fuel on the Zeebrugge hub was 0.45 pence a therm higher than on NBP, up from a premium of 0.25 pence a therm yesterday and reversing a discount at the close on May 12, broker data showed. Export nominations for tomorrow were at 18 million cubic meters, according to Interconnector data.
Russian gas to Europe via Ukrainian pipelines is flowing as normal without interruptions, a Gazprom spokesman said by phone today, asking not to be identified in line with corporate policy. Russian Energy Minister Alexander Novak will meet his EU counterpart Guenther Oettinger in Berlin on May 19. Russia hasn’t yet received any payment for gas from Ukraine, with the bill now at $3.5 billion, Putin said today in a letter to EU leaders.
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