One of the zombie ideas that refuses to die in the energy world is that the global LNG market is “oversupplied”.
The spike in UK gas prices yesterday demonstrated that the NBP remains a well-functioning hub, while Italy’s PSV struggled to deal with a halt to Tag pipeline flows following an explosion at Austria’s Baumgarten compressor station.
UK wholesale gas prices did what the market is designed to achieve, which is to ensure there are no interruptions to supply.
European near-curve prices rallied in November despite early indications that there will be more gas left in storage at the end of the winter than in most recent years.
Cold weather in November, and forecasts for it to extend into December, supported TTF contracts for delivery over the remainder of the winter. And the firmer gas prices are especially evident when comparing gas with coal — its main competition — as the TTF day-ahead market has climbed to levels that would make even the highest efficiency plants uncompetitive.
Limited flexibility in the auction schedule for buying pipeline capacity has resulted in an opportunity to profit from the NBP’s premium this winter being lost.
The NBP January and February contracts held a premium to the TTF wider than 4.45p/th from early September until the start of this week. This was enough to cover the cost of buying short-term BBL capacity to the UK from the Netherlands and other fees, such as the commodity charges.
An increase in the seasonality of LNG demand in northeast Asia has raised the value of using European terminals as storage for winter reloads.