Day ahead gas at the UK National Balancing Point (NBP) traded above 90/therm yesterday, equivalent to USD 477/kcm (USD 13.5/mmbtu), notwithstanding Total’s announcement that its Elgin/Franklin field complex has resumed after being shut in for a year. That took the gas price above the oil linked price for the first time this year.
Day ahead prices have been rising across Europe since mid-February with the pace increasing sharply since the beginning of March, particularly in the UK. The increase is reflective of another sharp bout of winter weather in Europe coming against the background of sharply depleted storage levels. This is especially the case for the UK where storage is now just 18% full, the lowest since March 2010. That most likely explains the particularly high price level in the UK which is some USD 27/kcm (USD 0.8/mmbtu) or 6% above day ahead gas prices for Zeebrugge or the TTF.
One month prices have not been noticeably affected and continue to trade around the USD 360/kcm (USD 10.2/mmbtu) level, or around a 20% discount to our estimate for the generic price of oil linked gas in Europe. We believe that reflects both the expectation that spring is arriving here soon and that adequate levels of pipeline gas will be available to meet demand.
Nevertheless, the increase in prices in the very short term, demonstrates considerable stress in the market as day ahead and one month prices generally track one another. It remains to be seen just how high day ahead gas prices can get, since storage can be depleted very quickly at current demand rates and the forecast is for significantly colder weather to persist in the near term across Europe.
Customers with firm contracts will be sleeping much more comfortably over the next few days than those without or traders seeking to cover short positions.