Last week, while NBP contracts for delivery in Q3 17 dropped sharply, winter 17-18 prices jumped after Centrica Storage (CSL) announced that injection capacity at UK’s Rough storage facility will be offline until at least May 2018 (for details, see E-mail alert: Centrica announces Rough injections will be offline this storage year, hiking UK gas exports in Q3 17, 12 Apr 2017). The announcement followed months of uncertainty about how much Rough capacity would be available in the coming storage year and raises the question of whether the facility will ever return to operations—at the moment, the most likely answer is no.
In Q3 17, we now expect the UK to export the gas that might have been injected into Rough to continental storage facilities instead. For next winter, the UK will again need to turn to imports from the continent and potentially more LNG to meet demand. The UK will be entering the winter season with around 1.5 bcm of mid and short-range storage capacity.
NBP Q3 17 prices shed 0.35 p/therm to 38.55 p/therm on the day of the announcement (12 April), though prices partially recovered by Friday. The NBP-TTF Q3 17 basis widened to -0.48 p/therm by Friday, having been at -0.33 p/therm at the start of the week. The NBP winter 2017 price extended its premium to the TTF to 3.84 p/therm by Thursday, up from 3.60 p/therm on Monday.
A relatively light North Sea summer works schedule had already weighed on NBP Q3 17 prices. With injection demand now cut by the amount of Rough capacity we thought could come back (around 1.4 bcm), the UK could struggle with oversupply this summer, especially if LNG receipts quicken. There is little room to push more gas into power y/y, so the market will only balance with greater exports. Interconnector (IUK) exports from the UK have already reached 39.5 mcm/d this month—close to the pipeline’s 60 mcm/d capacity, and 11 mcm/d higher than the Q2 16 average.
UK stocks excluding Rough were 0.63 bcm on Monday (17 April), just a touch lower than the 0.7 bcm they stood at on 1 July 2016—when Rough injections went offline. Given that there is no Rough capacity to fill this quarter, stocks at other facilities could be close to full by July.
In the near term, unseasonably cold weather could support prompt prices. Aggregate LDZ demand in Italy, France, the Netherlands, the UK and Belgium is forecast to rise to 3.53 bcm in the week through 24 April, higher by 1.23 bcm y/y and up from 2.11 bcm last week. This could slow storage injections, although Russian, Norwegian and LNG flows have stayed robust this month, which should limit any slowdown. On Tuesday morning, TTF prompt prices were trading just above the fuel-switching trigger of 15.81 €/MWh. A cold snap could provide enough support to keep prices trading around this fuel-switching trigger for the next couple of weeks.
|Last week's changes in European balances and short-term outlook|
|Source: Country SOs, GSE, Energy Aspects|