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BBL gas link reversal adds new dynamic to Northwest European market

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BBL gas link reversal adds new dynamic to Northwest European market

London — The Northwest European gas market is set for a significant new dynamic from July 1 when the BBL pipeline linking the Netherlands with the UK will be able to flow gas in both directions for the first time.

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The main shift triggered by the move is that the UK -- traditionally long on gas during the low-demand summer months -- will be able to export additional volumes of gas to the continent.

This will likely bring more price convergence and less disconnect between Europe's two most liquid hubs -- the Dutch TTF and the UK NBP.

"Reverse flow will mean closer integration and correlation between TTF and NBP this summer and going forward," S&P Global Platts Analytics managing analyst James Huckstepp said.

The International Energy Agency, in its annual global gas report published earlier this month, agreed that the BBL reverse flow would "further deepen" the interconnectivity between the TTF and NBP.

"The bidirectional pipeline will help channel excess gas from the UK during the summer -- which cannot be absorbed due to the lack of seasonal storage capacity following the decommissioning of the Rough storage facility," the IEA said.

It added that in the longer term, the reversal "could mitigate the increasing import needs of the Netherlands as the Groningen field is gradually phased out."

SHORT-TERM FLOW

In the short term, however, Platts Analytics sees limited use of the BBL in reverse mode not least as LNG flows to the UK have turned down in recent weeks and are expected to remain lower over the balance of the summer.

It said current forward spreads were not sufficient to incentivize any monthly bookings.

"And we assume limited daily bookings are only likely to take place when the NBP-TTF day-ahead spread covers the booking cost which sits at around 2.2p/th," it said.

Platts Analytics assumes around 2 million cu m/d of reverse flow in July and August on average, with the UK-Belgium interconnector remaining the more economic option.

Under the original BBL reverse flow plans, the capacity for flows from the UK to the Netherlands was set to be 168 GWh/d -- or 16 million cu m/d.

The capacity in the forward direction is 45 million cu m/d.

The pipeline operator -- the BBL Company (BBLC) -- first announced its plans to make the pipeline bidirectional in December 2017, saying it hoped to complete the necessary work in October 2019.

The timetable was brought forward by three months in November last year, meaning the reverse flow would be available during the summer season one year early.

In an update Friday on the work, the BBL operator said the physical reverse flow construction works and commissioning were "progressing well." It said the work on the Dutch site was finished and the commissioning activities had been started.

"On the UK site, the construction team faces a delay of three days," it said, meaning reverse flow commissioning would only be possible on June 30 rather than June 27 as originally planned.

"BBLC still aims to be ready for the reverse flow operations on July 1," it said.

CAPACITY BOOKINGS

Despite being technically ready, booking capacity in the UK-Netherlands direction will not be made available immediately, the operator said.

It said that "certain regulatory topics" with regard to reverse flow capacity had not been finalized in time to offer capacity for the July monthly auction held on the PRISMA platform on Monday.

"Depending on the outcome of these regulatory discussions BBLC aims to offer reverse flow capacity via the implicit allocation mechanism and PRISMA as soon as possible," it said.

Implicit allocation, which mirrors that offered by the operator of the IUK, allows for the sale -- on a first-come, first-served basis -- of BBL capacity together with an equivalent quantity of gas outside of the PRISMA auction calendar.

The key benefit of implicit allocation, BBL said, is that it allows shippers to make the most of arbitrage opportunities in the market.

The UK imported 2.72 Bcm via the BBL pipeline in 2018, or an average of just 7 million cu m/d, according to data from S&P Global Platts Analytics.

The imports were also centered on the winter months, though, with the October 2018-March 2019 average 11 million cu m/d, peaking at 44 million cu m/d -- effectively its capacity -- toward the end of January 2019 during the winter's only cold spell.

The UK exported some 7.8 Bcm of gas to Europe -- to Ireland and via the IUK -- last year.

The reverse flow is part a wider integration between the UK and Dutch markets. In January 2018, the whole BBL pipeline became part of the TTF market area after the Julianadorp interconnection point was removed.

-- Stuart Elliott, Stuart.Elliott@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com