Friday, May 28, 2010

Europe Natural Gas Summer Prices Rise

By Angela Henshall    Of DOW JONES NEWSWIRES  
LONDON (Dow Jones)--U.K natural gas prices for summer month contracts are firm ahead of maintenance planned at several North Sea fields in June, traders said Tuesday.
Maintenance is carried out at fields and terminals every year during the summer months when demand from consumers for gas to heat homes is lower. Repairs and work on the various sites means exports are normally trimmed, tightening supply into the U.K. system.
Traders have pointed out that this year several maintenance periods at different fields coincide and overlap; prices for June gas have already responded and the contract is trading around 37.50 pence per therm, after hitting 39 pence per therm at the start of the week, from deals were done nearer to 30 pence per therm a few weeks ago.
Royal Dutch Shell PLC (RDSB) Wednesday started partial maintenance at its giant Ormen Lange gas field in the Norwegian North Sea, which traders expect to continue for about a week. Maintenance has also been started at the Langeled Receiving Facility in Easington in northeast England, which receives flow from Norwegian fields, according to operator Gassco.
Market participants also expect a rolling program of maintenance throughout June at some of the fields, which link in to BP PLC (BP)-operated Central Area Transmission System.
"I think maintenance has been priced in (to prompt prices) for a while, but it depends how short the system gets next week," said a U.K.-based trader. "Demand will increase as temperatures cool off in the next few days."
Linepack, or volume of gas in the system, was seen closing at 344 million cubic meters and demand pegged at 278 mcm, according to the National Grid website.
"Summer maintenance will limit Norwegian flows, also (flows) from the U.K continental shelf. The maximum outage period will come around end of June to July I think," said a second trader.
In recent weeks U.K natural gas prices further out along the curve have also gleaned some support from depleted storage levels. One analyst pointed out that stockpiles at the U.K's largest storage facility, Rough, have sunk to their lowest level in five years for this time of year. Prices also started to look a little firmer following alteration dates for some liquefied natural gas deliveries from Qatar.
"We have high exports to the continent to cover their issues upstream and German power demand, plus heavy injections into the Rough storage facility to replenish levels that were heavily drawn-down over Q1'10--a bullish mix," the second trader said.
Some traders say continued high exports through the InterConnector pipeline linking the U.K with Belgium is indicative of oversupply in the U.K market, and persistent buying from Germany.
"Strong German demand is just down to more gas-fired generation, plus they are replenishing their gas storage levels as well," the first trader said.
Even further ahead, market participants are looking at trading the spread between Summer and Winter prices, "if the current trend of LNG persists, there will be some support for winter prices," the second trader said. he said the Winter '10 contract has traded close to 40 pence per therm in the last month or so but previously spiked closer to 50 pence per therm, with this volatility likely to continue.
-By Angela Henshall, Dow Jones Newswires; +44 (0)20 7842 9285;

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