UK gas prices stay high on cold weather, low stocks
LONDON (Reuters) - British spot gas prices remained firm between Wednesday and Thursday morning because cold weather and low stocks caused a tight system.
Prices are expected to fall however, as warmer weather begins to move in and Norwegian supplies improve.
Both gas prices for next day and for within day delivery were trading at 82 pence per therm at 10.00 a.m. on Thursday, slightly higher than the previous morning (see chart 1).
The high prices are a result of unusually cold weather and low stock levels.
At 316.9 million cubic metres (mcm), Thursday's gas demand was expected to be more than 20 percent above the seasonal norm, according to National Grid, although flows of 327.9 mcm, which include storage withdrawals, were expected to meet demand.
Because of the cold weather, which has gripped Britain since the beginning of March, the UK's gas storage sites have been depleted by 93.71 percent, to just 299 mcm, according to data from Gas Infrastructure Europe.
This leaves the market with less than a day's worth of gas consumption of reserves in case of a major supply outage. (see chart 2)
WARMER WEATHER COMING
Despite the tight system, analysts said prices were likely to fall towards the end of the week as milder weather would move into Britain and Norwegian gas supplies would improve.
"The day-ahead contract is bearish due to lower forecast consumption and an increase in supply today," analysts at Thomson Reuters Point Carbon said.
"The higher Norwegian exports to the UK are due to slightly lower Norwegian exports to the continent, but also slightly higher Norwegian production," they wrote in a note.
Britain's Met Office said temperatures could reach 10 degrees Celsius by the weekend, and that there were signs of more typical conditions for the time of year by mid-April.
"It seems as if winter will end just in time to prevent Britain's gas storage sites to be completely emptied, which would cause a massive price spike," one gas trader said.
"Given how close we have come to this happening this year, it is clear that this could happen in future winters unless more storage capacity is built," he added.
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