The end of maintenance at a pipeline linking Germany to Russia will probably cut gas export demand from the U.K., putting pressure on prices currently at a 4-year low as Britain’s storage sites fill up earlier than usual.
Planned maintenance at the Nord Stream pipeline that’s limiting supply to Germany will end tomorrow, according to network operator Opal Gastransport GmbH. The works, started June 24, helped support gas prices last week in the U.K., which boosted exports to the continent, London-based consultants Energy Aspects Ltd. said in a report e-mailed on June 30.
Gas demand to fill storage sites in the U.K. will slow this month and the next as inventory building is “basically already done,” according to Credit Suisse Group AG. Facilities will probably be filled in August, earlier than the usual October period, Richard Sarsfield-Hall, a senior principal at Poeyry Consulting (U.K.), said by phone on June 30.
“Russia has the ability to move vast amounts of gas through Nord Stream, so the end of works is generally bearish to U.K. gas prices,” Tobias Davis, a gas broker at GFI Securities Ltd. in London, said yesterday by e-mail. “We also have large LNG deliveries and historically high storage levels, so expectations are we will be oversupplied.”
U.K. gas for August, which fell at the slowest rate in more than a month in the week ended June 27 as Nord Stream maintenance started, slid to 37.89 pence a therm ($6.49 a million British thermal units) on the ICE Futures Europe exchange in London today. That’s the lowest for a next-month contract since August 2010. Prices are down 44 percent this year.
The U.K. received 10 LNG cargoes in May, the most in a year, according to port authorities and ship-tracking data compiled by Bloomberg. Eight vessels arrived in June and four are scheduled so far this month. Normal flows to Europe via Ukraine after Russia cut supplies to the nation on June 16 are also adding bearish pressure on U.K. gas prices, Davis said.
Russia’s OAO Gazprom said today transit to Europe via Ukraine was proceeding normally while the Slovakian grid operator said it didn’t record pressure reduction or lower volumes at a compressor station at the Ukrainian border.
Europe’s mildest winter in seven years meant less gas was withdrawn and inventories filled up earlier, with facilities in the U.K. 93 percent full as of June 29, according to data from Gas Infrastructure Europe, a lobby group in Brussels. That’s the highest for that time of the year since at least 2007. Facilities were yesterday 84 percent full after more storage space was made available, the data showed.
Demand usually declines in the summer as less gas is used for heating, with an average low point on Aug. 7, according to National Grid data for the past 10 years.
The U.K.’s “exceptionally high” inventories left “far too little storage demand in the system this spring and summer,” Credit Suisse analysts including Jan Stuart said in a June 23 report. “It is a matter of time before the winter futures and next year’s calendar average futures come down more.”
Winter gas, for the six months from October, was little changed at 56.4 pence a therm on ICE. The contract lost 9.9 percent since the summer season started on April 1.
Exports from the U.K. to Belgium started to slow as Nord Stream ended its full shutdown on June 28, with capacity at the Greifswald terminal in Germany at 50 percent until tomorrow. Shipments to Belgium fell for a fifth day yesterday to 19 million cubic meters from 38.5 million on June 27, according to data from Interconnector U.K. Ltd., which operates the pipeline.
Nord Stream flows reached 923 gigawatt-hours a day (86 million cubic meters a day) yesterday, approaching the average level of 1,013 gigawatt-hours a day since the start of the year, according to data from Opal and NEL Gastransport GmbH, operators of the two German onshore pipelines connected to the marine link.
U.K. prices probably won’t find support from gas usage in power generation, according to Sarsfield-Hall. While the amount of electricity produced from the fuel climbed in the past two months, according to National Grid, higher prices later this year mean coal will be more advantageous this winter, he said.
“Gas usage in power generation often is higher in the summer than in the winter” because of seasonality in prices, Sarsfield-Hall said. With gas prices rising later this year and coal continuing to fall, “that will push the market back to using more coal in the winter.”
Prices on the U.K.’s National Balancing Point hub will average 39 pence a therm in the third quarter, Credit Suisse said, cutting its forecast from 57 pence a therm. Prices in the last three months of the year, when the winter season starts, will be 54 pence, down from an earlier estimate of 65 pence, according to the bank.