UK sends gas to Continent for first time this summer

The UK has exported natural gas to Continental Europe for the first time this summer season, S&P Global Platts Analytics data showed June 7.

Following an intraday ramp up of the Balgzand-Bacton Link Pipeline on June 4, gas flow towards the Netherlands has sustained. The transit was nominated to deliver 3.8 million cu m on June 7, on 4 million cu m/d of daily capacity purchased on June 6.

Gas exports from the UK to mainland Europe have quickly again become profitable, as a continental premium quickly opened up on the spot soon after June delivery began.

The subsequent initiation of flows, however, may have taken some by surprise given that the normally traditional exports from the UK have not taken place this year until now.

This lack of exported volume has been a result of strong demand and wavering supply in the UK, but mostly due to an abolition of the Optional Commodity Charge, or "shorthaul tariff," which historically allowed producers to send volumes to the continental even when the UK was at a premium.

Market participants may well feel that the current volume of flow is also reflective of the shorthaul termination, given that BBL exports averaged 13.1 million cu m/d in June 2020, and were well sustained for most of last summer.

According to Platts Market on Close price assessments on June 4 for day-ahead delivery, the Dutch TTF held a 2.72 pence/therm premium to the British NBP, enough to cover the full cost of transport even with purchases of capacity and NBP volumes for export.

On these hubs respective balance-of-month contracts, the TTF held a 1.946 p/th premium June 4, which is below the 2.42 p/th threshold for full transportation costs in June, according to Platts Analytics.

Prospects for flows to the Netherlands are looking stronger for the month ahead, with 11 million cu m/d of July monthly capacity purchased back in February.

The month-ahead TTF-NBP spread was assessed at 2.22 p/th June 4, just shy of total transport costs but well above the spread required if capacity is held, meaning the potential July flow is unlikely to be ramped down.

Gas export economics often favor rising markets, such as the 35% increase in TTF Q3 prices observed since the start of April, because an early purchase for export can be used to satisfy a later sell within the destination market.

Despite having a marginally lower cost of transport in June, the IUK pipeline heading towards Belgium is currently not exporting due to annual maintenance being performed on the transit. These will be completed by the start of gas day June 16.

Additionally, the Zeebrugge basis spread with the NBP does not yet have sufficient premium to incentivize flows even if maintenance was not being performed.