U.K. Gas Has Biggest Drop Since 2009 on Heat, Exports

U.K. natural gas futures had their biggest weekly drop in more than four years as parts of Europe are forecast to face record heat and planned pipeline maintenance cuts exports to Belgium.

The benchmark front-month contract fell 1.8 percent on the ICE Futures Europe exchange, extending its weekly decline to 10 percent, the biggest drop since November 2009. Temperatures in Paris and Amsterdam are set to rise to records for the time of year tomorrow while Berlin may see new highs at the start of next week, according to Commodity Weather Group.

Interconnector (U.K.) Ltd.’s pipeline between the U.K. and Belgium will have maintenance from June 11 to June 26. Britain has been exporting gas to mainland Europe since April after five months of imports through the two-way link, according to data from grid operator National Grid Plc. Higher flows from production fields in Norway, including Troll, and liquefied natural gas terminals also pressured prices.

“The front-month is being led by a weak prompt, with maintenance at the Interconnector set to hit exports,” Tobias Davis, a gas broker at GFI Securities Ltd., said today by e-mail. “That coupled with warmer weather, high LNG flows, Troll being back online and still no sign of gas switching in power generation, are all factors contributing to the fall.”

Front-month gas dropped to 39.7 pence a therm ($6.68 per million British thermal units) on ICE at 4:01 p.m. in London. The contract fell as much as 2.8 percent to 39.3 pence a therm, the lowest since August 2010. Dutch gas for July declined as much as 5.1 percent to 16.90 euros a megawatt-hour ($6.75 per million Btu), the lowest since July 2010.

Hot Weekend

Parts of Europe will face similar heat as in 2003, the continent’s hottest summer on record, Bethesda, Maryland-based Commodity Weather Group said yesterday in an e-mailed report. Temperatures in central Europe will be more than 6 degrees Celsius (11 Fahrenheit) above normal next week, MDA Weather Services in Gaithersburg, Maryland, said in a separate report e-mailed today. European temperatures will be above normal in the next three months after the warmest spring in 34 years, according to five of six meteorologists polled by Bloomberg.

U.K. industrial, commercial and residential demand will drop to 66 million cubic meters a day next week, down from a previous forecast for 68.1 million, according to Bloomberg’s gas model. That compares with 71.2 million cubic meters today. Demand including exports and power generation is forecast at 196 million cubic meters, 9.2 million above the seasonal norm, National Grid data showed.

Gas exports from the U.K. to Belgium last month jumped 68 percent from a year earlier to about 790 million cubic meters (28 billion cubic feet), according to National Grid data.

Storage Maintenance

Within-day gas in the U.K., Europe’s biggest market, fell as much as 11 percent to 35.5 pence a therm as maintenance at Centrica’s Rough storage facility cut demand. Injections will be cut by 22 million cubic meters a day for 36 hours from 6 a.m. today due to a full site outage, it said on May 23.

“Rough’s 36-hour maintenance period is putting pressure on prompt prices this morning,” London-based Davis said. That’s “causing a drop in demand.”

U.K. gas for winter, or the six months from October, declined for a sixth day, losing 0.4 percent to 59 pence a therm on ICE.

Norwegian flows to the U.K. are at 56 million cubic meters a day compared with a 10-day average of 43 million cubic meters a day, Gassco AS data show. Exports to Belgium were nominated at 32.2 million cubic meters today, down from 27.1 million yesterday, Interconnector data showed.

Ukraine Meetings

The U.S. and its allies embarked on two days of contacts with Russian leaders in a bid to resolve the crisis in Ukraine. Russian President Vladimir Putin met with U.S. President Barack Obama and held his first talks with Ukraine’s new leader, Petro Poroshenko. U.K. Prime Minister David Cameron will meet Putin in Paris this evening, before the Russian president has dinner with French President Francois Hollande. U.S. Secretary of State John Kerry also holds talks with Russian Foreign Minister Sergei Lavrov in Paris today.

OAO Gazprom gave NAK Naftogaz Ukrainy an extra week before demanding it pay for supply in advance after getting payment for February and March, the company said on June 2. Previous pricing disputes between the two countries disrupted supplies to Europe in 2006 and 2009.

“In the short term, Europe does not face the risk of a natural gas supply shortage,” Lysu Paez-Cortez, an analyst at Natixis SA, said in a report e-mailed yesterday. “The current conflict is taking place in spring and at a moment when European natural gas stocks are over 60 percent full.”

Before it's here, it's on the Bloomberg Terminal.