- July 8th, 2013
National Grid queries UK’s winter balance
UK gas system operator the National Grid is consulting the market as to whether the exceptionally tight supply-demand balance that emerged at the end of last winter — sending prompt NBP prices soaring — could be repeated next year.
It comes after the National Grid made little change to its overall UK supply-demand outlook for next winter compared with the last. The firm expects weather-corrected demand during the 2013-14 winter to be broadly flat to last year, with gas remaining the marginal fuel for generation.
National Grid expects maximum supply from the UK continental shelf to be about 110mn m³/d next winter, a reduction from last winter’s 125mn m³/d maximum delivery rate, as new fields offset a broader pattern of declining indigenous production.
Imports from Norwegian fields are expected to average around 105mn m³/d during the six-month period, little changed from the 102mn m³/d delivered last winter. And the system operator expects LNG imports to remain subdued — albeit with a significant degree of uncertainty — because of still-robust demand in Asia-Pacific.
About the only significant change to the outlook is an expected increase in mid-range storage and withdrawal capacity, thanks to expansions at Aldbrough and Holford and the commissioning of the Hill Top Farm facility. The National Grid estimates total deliverability at 136mn m³/d across mid and long-range sites, compared with 108mn m³/d in 2012-13.
National Grid is asking market participants what dynamics will drive prices this winter, with little significant change to the supply-demand outlook, and whether there has been a change in the broader regional configuration of winter supply that could help explain the prompt price surge at the NBP in late March and early April.
The company in particular asked participants for insight into last year’s configuration of flows — where storage was drawn down heavily in January and February, before an exceptionally cold March and early April priced on record imports through the Interconnector and the BBL, as well as attracting significant swing Norwegian supply.
Storage withdrawals across northwest Europe were relatively strong during much of last winter, drawing down the accumulated inventory overhangs from previous winters and allowing for weaker imports from major producing countries. The stronger call on storage came at a time at which forward gas and oil prices suggested that oil-indexed long-term contract prices — which were still near their July 2012 peak for much of the winter — would be significantly lower in the second half of 2013, offering ample incentive to draw down inventories and defer long-term contract imports until this summer.
But when March and April proved far colder than the norm, regional inventories were too low for storage to offer much incremental supply, pushing prices across northwest Europe higher to attract additional oil-linked supply from Russia in particular. The situation was much more pronounced in the UK, whose storage capacity is around five times smaller than that of Germany, despite comparable annual demand. UK inventories, with less storage capacity, were drawn down more rapidly, and long-range stocks were effectively depleted by early April.
And LNG deliveries were largely insensitive to rising prices at the NBP until late in the winter, when the combination of largely depleted long-range storage inventories and a brief Interconnector outage sent prompt prices to about £1/th — broadly level with the cost of spot LNG to northeast Asian importers. The rally spurred a rise in send-out from the Isle of Grain and Dragon LNG terminals, which was followed not long after by deliveries of Algerian and Trinidadian cargoes to the two facilities, respectively, replenishing stocks.