Industry Trend Analysis - Gas Connectivity Ensures Security Of Supply - JAN 2018


BMI View: Despite short-term volatility in the NBP price, we do not foresee significant risk to the UK's security of gas supply over the winter. Extensive pipeline connections to Norway and mainland Europe as well as a number of LNG import options ensure this.

The confluence of cold weather in the UK with several supply disruptions in the North Sea and Central Europe have resulted in a substantial increase in NBP volatility over the past week (beginning 11 December). An explosion at the Baumgarten gas node in Austria resulted in a 12% intraday NBP price increase as concerns over restricted supply into Europe sent the UK gas price to the highest since January 2014. Similarly, the shutdown of the Forties pipeline in Scotland shut-in supply from several offshore gas fields. Both emergencies coincided with period of low temperatures in the UK driving higher demand for gas for heating.

We have highlighted previously how the closure of the UK's long-range gas storage facility, Rough, will heighten winter gas price volatility in the country (see ' Rough Closure Will Heighten Price Volatility ' , June 22 2017). Typically, Rough has been a key part in satisfying seasonal peaks in demand and the loss of the facility will reduce the UK's ability to manage the supply/demand balance of short-term disruptions. However, despite the recent supply disruptions, we do not see significant risk to the UK's security of gas supply over the coming winter. Namely, the UK remains well supplied from Norway and with LNG cargoes from Qatar, the USA, and now Russia following the commissioning of the Yamal LNG plant. Furthermore, whilst domestic gas production is set to decline over the long term, the completion of the current project pipeline will maintain output over the next three years.

3-year Highs Following Supply Disruptions
UK NBP Natural Gas Forward M1, GBp/therm
Source: Bloomberg.

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