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WRAP: UK gas market spikes on Interconnector outage, low storage

Highlights

UK natural gas prices for same-day delivery spiked as high as 150pence/therm ($22.80/MMBtu) early Friday as a key pipeline that carries gas tothe country from Continental Europe halted operations against a backdrop ofcold weather and low storage stocks.

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The price of 150 p/th is more than double the 69.19 p/th averagewithin-day price seen in February. It far exceeded spot gas prices in Asia andthe US. The Platts Japan Korea Marker for the second half of April, the firstassessment period, was at $15.90/MMBtu, while the Platts US national averageprice for flow on Friday was $4.15/MMBtu.

As recently as Wednesday, the UK-Belgium Interconnector flowed a record783 GWh of gas into the UK, or 74 million cubic meters, approaching a quarterof recent UK demand levels around 300 million cu m/day.

Both the Interconnector and the Dutch BBL pipeline have been key sourcesof supply during the current winter, when LNG deliveries have been lowcompared with last year. LNG suppliers have been targeting higher prices inAsia and South America instead of northwest Europe.

But early Friday, flows through the Interconnector, which would havebeen expected to continue at strong rates, dropped to zero.

There was a failure at 0700 GMT at the Bacton receiving terminal for thepipeline, which flows gas from Zeebrugge in Belgium to Bacton in the UK.

A connection to a pump on the hot water system, which heats the gas fromthe pipeline before it enters the UK system, failed, and the resulting steamescape triggered a shutdown of operations, operator IUK said.

Flows started to return in the early afternoon, before the pipe wastaken out of action again from around 1400 to 1500 GMT for further work,which allowed it to build back up to full capacity from 1500 GMT onwards,after an interruption lasting around eight hours in total.

At 1730 GMT it was back at full capacity of at 76 million cu m/day. UKwithin-day gas was closed at 1630 GMT at 99 p/th, still high, but down 51p/th from the morning peak.

National Grid forecast UK gas demand for Friday around 347 million cu min its 1700 GMT figures, compared with a seasonal normal of 271 million cu mby an unusually cold start to the spring, with the frigid weather expected tocontinue in the coming week.

The loss of such a major supply source caused concern, but marketsources and the government said the UK could cope.

"We'll exhaust what we can. Rough [storage is] up to capacity of 37million cu m, we'll have full imports [from Norway and the Netherlands],medium range storage and LNG, but we're still going to be short so they'regoing to have to reduce demand by asking intermittent contract holders toturn off," an energy analyst said in the morning, when the duration of theoutage was unclear.

In the event of a long-lasting gas shortage, suppliers can cut off flowsto major users such as factories, or power plants can switch fuels, to ensurethere is no disruption to households.

The UK Department of Energy and Climate Change said: "We are aware ofthe temporary disruption [to the Interconnector] ... We have diverse sourcesof gas for this very reason and there is sufficient capacity to cover thesekinds of events."

System operator National Grid told Platts the market was responding tothe outage. Grid's data website showed that Rough storage increased deliveryto its current maximum of around 37 million cu m/day and Holford storage cameon at over 20 million cu m/day. The Dragon LNG terminal, which has beenlargely inactive this winter, flowed out at over 15 million cu m/day.

South Hook and Grain LNG did not step up flows, but probably had furtherpotential.

In the end, the Interconnector's eight-hour outage took it out foraround a third of the day, meaning a loss of around 25 million cu m of supplyfor the day, based on the recent record 74 million cu m/day flow rates.

That was not a major loss in itself, with the storage facilities and LNGsuppliers able to step up flows. But the longer such a loss lasted, the lowerstorage and LNG stocks would have fallen.

Gas Storage Europe shows UK gas stocks at only 10.6% of capacity.

The Rough facility holds around 2,684 GWh or 254 million cu m of stocks,according to National Grid data, while medium-range facilities hold 2,385 GWhor 225 million cu m and there is the equivalent of 4,391 GWh or 415 millioncu m of gas in the tanks of LNG import terminals such as Dragon, South Hookand Isle of Grain.

Two Qatari LNG tanker deliveries are expected soon: the Mekaines toGrain and the Zarga to South Hook.

UK April NBP prices of $10.75/MMBtu do not yet, however, look generallyattractive for LNG supplies compared with Asian levels.

The UK's nearest LNG producer, Norway's Hammerfest, has been out formaintenance in recent weeks.

Sean Waring, the managing director of IUK, said: "We understand theseriousness of a disruption like this in the current tight energy markets. Todate, Interconnector has demonstrated a high level of reliability, butoperational upsets do occur from time to time in complex [facilities]. Ourimmediate response enabled us to restore flow to full capacity quickly."

--Staff reports, newsdesk@platts.com--Edited by Keiron Greenhalgh, keiron_greenhalgh@platts.com