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  • June 25th, 2014

U.K. Gas Decline May Slow as Interconnector Starts

The reopening of a link between Britain and Belgium may help slow declines in U.K. natural gas prices this week as maintenance starts on the only natural gas pipeline directly from Russia to Germany.

U.K. day-ahead gas fell about 10 percent this month, outpacing a 4 percent drop in the comparable contract on NetConnect Germany, according to broker data compiled by Bloomberg. The return from maintenance of Interconnector U.K. Ltd.’s pipeline between Belgium’s Zeebrugge and Bacton, England, on June 26 should limit further declines as higher European prices encourage exports, according to Trevor Sikorski, an analyst at Energy Aspects Ltd. in London.

The Nord Stream pipeline that runs under the Baltic Sea from Russia to Germany will limit supply to Germany from today to July 4 for maintenance, according to network operator Opal Gastransport. The U.K. shipped gas to mainland Europe via the Interconnector, or IUK, every day from March 30 until it closed on June 11, according to its operator.

“With IUK coming back on, there should be some added supply that has not been available to the continent for the last two weeks,” Sikorski said by e-mail on June 20. “This could stop prices from falling any further, rather than actually rising from current levels.”

U.K. day-ahead gas rose 1.6 percent to 38.5 pence a therm ($6.54 a million British thermal units) today, broker data show. That compares with 17.57 euros a megawatt-hour (41.3 pence a therm) on NetConnect Germany and 17.40 euros on the Dutch Title Transfer Facility. The premium of German gas to U.K. fuel was 3.2 pence yesterday, the highest since June 25, 2013.

Maintenance on the Nord Stream pipeline comes eight days after OAO Gazprom (OGZD) cut shipments to Ukraine, which carries about 15 percent of Europe’s needs through Soviet-era pipelines from Russia. The Russian state-run company was boosting supplies via Ukraine to prepare for the 11-day scheduled works, Sergei Kupriyanov, a spokesman, said yesterday.

Premium Needed
In case of supply disruptions, prices in the rest of Europe have to trade at a premium to the U.K. to encourage flows from Norway and exports from Britain via the Interconnector, Nick Campbell, an analyst at Inspired Energy Plc. (INSE) in Kirkham, England, said by e-mail last week.

Combined exports from Norway to Germany via the Dornum, Emden EMS and Emden NGT entry points rose to 121 million cubic meters a day today compared with a 10-day average of 116 million cubic meters, Gassco AS data showed. Shipments to the U.K. were at 44 million cubic meters, in line with the 10-day norm and lower than at the start of the day yesterday.

LNG Supply
A “wave” of liquefied natural gas cargoes arriving in the U.K. will also stimulate exports from Britain, Campbell said. Ten shipments of the super-chilled fuel docked in Britain last month, the most in a year. Another seven arrived this month and one is expected on June 30, according to port authorities and ship-tracking data. The spread between U.K. and Dutch prices will probably start to narrow again when the Interconnector opens, Sikorski said.

U.K. gas slid 7.1 percent last week as maintenance at the Interconnector was “keeping gas in the U.K., which would have otherwise been exported, pressurizing spot prices,” Citibank said yesterday in a report.

Storage units in the EU’s 28 members were 68 percent full as of yesterday, the highest level for the time of the year since 2011, according to Brussels-based lobby group Gas Infrastructure Europe. Facilities in Germany were 76 percent full, the highest for the time of year since 2008.

“The market does have so much gas in storage compared to last year that it is unlikely to be that big a deal in terms of price support,” Sikorski said, referring to the Nord Stream works. “If any price support materializes, given the comfortable position of supply against weak demand, we would expect it to be modest.”

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