LONDON (Reuters) - Gas prices spiked to five-year highs on Monday after unplanned outages at North Sea facilities left the market severely undersupplied.
Within-day gas prices traded as high as 120 pence per therm on Monday morning as the system was undersupplied by around 60 million cubic metres per day (mcm/d).
Prices were volatile in morning trading, moving between 96-120 pence.
Norway's Nyhamna gas plant connected to Shell's giant Ormen Lange field in the North Sea, which primarily exports gas to Britain, had an outage on Saturday after stormy weather. Production was still down by around 53 mcm/d on Monday. The capacity of the plant is 70 mcm/d.
"It's the Nyhamna outage, Ormen Lange's processing plant. With storage so low and Norway running 100 percent it's gone mental," said one British gas broker.
In addition to the Norwegian outage, flows through Britain's St. Fergus terminal were reduced by around 7 mcm/d on Monday, creating an extremely tight supply situation.
The St. Fergus terminal receives gas from the FRIGG pipeline, which transports gas from the Cormorant Alpha field, among others, that experienced an outage due to a hydrocarbon leak over the weekend.
At the same time, UK gas traders have been worried about very low gas storage levels, drained over weeks of below-average winter temperatures.
Inventories at Britain's largest storage site, Rough, were more than 60 percent below the lowest point reached last winter, National Grid data showed.
"With storage levels extremely low and supply from Norway falling from 70 mcm to 50 mcm, the system has become even more strained in the face of rising demand and more long positions as we struggle to meet demand with Rough outflows," said Serge Mozadila, energy market analyst at LG Energy group.
The bullish spot gas market pushed up prices across the market, with front-month April adding as much as 0.85 pence to 68.40 pence a therm and the benchmark front-season contract trading to a high of 67.70, up around 2 pence on Friday's closing level, before retreating below 67 pence in the afternoon.
Power prices rose in line with the bullish gas market, trading up over 11 pounds on the spot to around 63.50 pounds per megawatt-hour (MWh), the highest in over a year.
The squeeze in the gas market clashes with a glut in the coal sector, where European futures contracts dropped to new lows.
API2 2014 coal futures contracts were trading around $96.55 a tonne at 1400 GMT on Monday, over 30 percent below their most recent peak around $138 a tonne reached in spring 2011, when the Arab spring, Australian floods, and the nuclear disaster at Japan's Fukushima reactors caused a spike in energy prices.
Traders said that the price drops were a result of improving supplies from exporters Colombia and Mozambique.
As a result of coal's oversupply clashing with the supply squeeze in Britain's gas markets, electricity generated from coal gained further competitive edge over power produced from gas.
Coal is now almost 20 pounds per megawatt-hours (MWh) more profitable for electricity generation in Britain than gas, its highest margin this year.
Producing baseload electricity from coal for sale the next quarter currently delivers around 22.65 pounds per MWh to generators, the highest level since the beginning of the financial crisis, while the equivalent gas margin is at a mere 3 pounds per MWh.
Editing by Alison Birrane