December 2, 2010 / 6:25 PM / 9 years ago

Gas storage supply cut spikes prices in cold weather

LONDON (Reuters) - Gas prices for within-day delivery pushed up nearly 20 percent on Thursday after gas flows from the country’s largest storage site stopped unexpectedly and caused concern about meeting unseasonably high demand levels.

Gas for delivery on Thursday traded up to 72.00 pence per therm, levels last seen at the height of the Russian gas crisis in the winter of 2008/09, shortly after gas flows from the Rough storage site dropped from around 45 million cubic metres (mcm) to zero, according to National Grid.

“The impact could be large, losing 45 mcm will make the system very tight as all other supplies are stretching to the max,” one gas market analyst said, adding the market panicked after Rough supply dropped to zero.

Operator Centrica (CNA.L) said it did not comment on day-to-day operations.

Around half an hour after flows dropped to zero, supply resumed and stood at roughly 32 mcm at 6:05 p.m., according to grid data.

Within-day gas prices fell slightly after flows resumed, but remained nearly 5 pence above levels seen earlier on Thursday at 69.95 pence. Gas for day-ahead delivery was less affected, trading up around 1 pence from morning levels at 62.20 pence.

Thursday’s gas demand levels exceeded the network operator’s threshold margin for calling for extra supply by around 4 mcm, but no balancing alert was issued.

Consumption on Friday is expected to drop below Thursday’s levels but cold weather is keeping demand well above seasonal averages.

Contracts further out reacted only mildly to high gains on the prompt as the prospect of further liquefied natural gas supply, most recently boosted by the expansion of the Isle of Grain terminal near London, dampened fears about draining storage levels.

“There’s lots of LNG waiting to sell into it though,” one UK energy market trader said.

At least five tankerloads of super-cooled gas are expected to arrive in Britain over the next week. <LNG/TKUK>

Gas for January delivery traded at 56.50 pence ($8.83 per mmBtu), up 0.30 pence from the previous session.

POWER

In the over-the-counter power market, contracts dropped off highs seen on Wednesday as day-ahead demand was expected to drop before the weekend and the prospect of two more nuclear plants returning to service over the coming days added to higher supply margins.

Power for delivery on Friday fell by 9 pounds to 61.00 pounds per megawatt-hour (MWh), while Sunday traded down to 53.00 pounds.

EDF Energy’s 660-MW Heysham 2-8 nuclear unit is expected to return to service on Saturday, while the utility’s Heysham 1-1 is due to follow on Monday, National Grid data forecast.

Reporting by Daniel Fineren and Karolin Schaps; editing by James Jukwey

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