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  • March 15th, 2013

UK Gas Prices Remain High On Cold Weather

British wholesale spot gas prices rose above 90 pence a therm this week as extreme cold pushed up demand and reduced further already heavily depleted gas storage levels.

Gas prices for delivery were trading at 93 pence a therm. This is up 4 pence since closing at the beginning of the week and prices for delivery the next day were up.

Power prices for baseload (24 hours) delivery were also bullish rising to £66/MWh.

The high prices were a result of the extreme cold and the low storage levels according to traders and analysts. One gas trader said this sort of cold and the high demand that comes with it is unusual in mid-March and the depleted storage levels won’t be able to cope with it for long.

According to data from National Grid gas demand in Britain was expected to be almost 32% above the seasonal norm this week.

The system would just be able to meet demand but analysts said that utilities were withdrawing from storage in order to meet the needs.

Traders and analysts said given the low storage levels, the system could be vulnerable to supply disruptions therefore adding bullish risk factor to the price.

Britain’s gas storage sites were filled to an average of less than 20% early this week and this is down from over 86% at the beginning of the year. Utilities were further withdrawing reserves in order to meet demand.

The tight system is a result of cold weather that moved into Britain last weekend with sub-zero temperatures seen across the country.

Britain’s Met Office said that it would become gradually warmer later this week, but that maximum daytime temperatures would likely remain below 10 degrees Celsius.

The high spot prices has also affected the forward curve, where gas prices for delivery next summer rose to their highest level since September 2011.

Although technical indicators suggest a strongly overbought contract and traders said that the forward market was being driven up by the tight spot market.

An analyst said this late cold snap will affect utilities as they usually begin to restock their gas storage sites by this time of the year but this will have to be delayed until well into the spring season. This takes out supplies for that time and lifts summer gas prices.

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