Winter 2007
Supply
The UKCS supplied 60% of winter 2007’s total demand. There was little change in net UKCS production when compared to winter 2006 despite stronger flows from Barrow and Bacton. Norwegian exports reached 300mcm/d but the UK received only 74mcm/d due to higher deliveries to the Continent predominantly Germany (130mcm/d). There were stable supplies from the Netherlands via the BBL pipeline with an average of 25mcm/d and additional supplies were available via the Interconnector which provided up to 24mcm/day during high demand periods. The UK based, Isle of Grain LNG storage facility, received fewer cargoes than winter 2006 due to the substantial premiums available in Asian and central European markets. As a result, withdrawals from LNG facilities were lower than long and medium range storage. Rough’s highest delivery was 44mcm/d whilst Medium Range Storage withdrawals averaged 28mcm/d.
Demand
Actual demand was higher than Seasonal Normal Demand (SND) for most of the winter despite it being the sixth mildest in 80 years. Given LDZ demand was either at or below SND the change in profile was the result of other factors such as greater demand from gas-fired power generators after delays in coal fired plants meeting LCPD requirements, and higher carbon and coal prices.
Prices
Prices increased from 35p/th in October 07 to 58p/th by mid November. This new threshold was tested over the coming days, dropping back to under 45p/th at the end of December only to climb back to above 58p/th by mid January. From that point forward it was clear that the long term sentiment was determinedly bullish.
Winter 2008 Outlook
Supply
UKCS supplies are expected to be lower for the coming winter with reduced flows from Theddlethorpe, St Fergus, Barrow and Bacton amounting to a reduction in supply of 28mcm/d compared to last year. While Norwegian flows are expected to increase due to higher production at Ormen Lange, this may be diverted to the Continent as last year’s flow data suggests. The UK is forecast to receive 80-115mcm/d from Norway whilst Germany, for example, may see between 108mcm/d and 144mcm/d. BBL and Interconnector flows into the UK are expected to be similar to last year albeit BBL imports have the potential to reduce following new arrangements from 1 September 2008 which will allow for interruptible, non-physical reverse flows. Overall, non storage gas supply will be within the range of 300-400mcm/d.
Milford Haven (South Hook and Dragon) and Grain Phase 2 are expected to be commissioned by winter 2008 but this does not necessarily mean that flows will come from any of the LNG terminals. Whilst gas prices in Europe are forecast to be higher than in the US, Asia has been willing to pay up to a 10p/th premium to attract LNG cargoes. Aldborough storage is due to come online by winter 2008 but flows are not realistically expected until after the season expires
Demand
Demand is expected to be lower than during winter 2007 due to the completion of the installation of plant at coal fired power stations in line the LCPD requirements. Coal is also likely to once again become the more competitive fuel for power generation based on current prices.
Seasonal normal demand is projected to be 640TWh compared to 630TWh last year. NDM SND is forecast to be lower at 380TWh compared with 398TWh last year implying 260Twh will be made up with non LDZ demand.
Prices
National Grid forecast oil prices to fall from $135/bbl, at the time of writing, to $110/bbl by November 2009. NGT also forecast Winter-08 prices would hit a maximum of 85p/th. However, the seasonal products jumped markedly as oil continued to trade up to $145/bbl. This pushed Winter-08 beyond 105p/th. Oil prices subsequently fell $30/bbl allowing the Winter-08 contract to retrace to 88.5p/th (as of 06 August 2008), but Brent has since come down further to $105/bbl (05 September 2008) yet the NBP Winter-08 contract has bounced back up to 103p/th with supply issues. The Industry estimated that coal prices would reach a maximum price of $145/tonne, falling to $135/tonne by the end of 2009. However, the market traded at $190.90/tonne and $203/tonne for the forward month several weeks ago and as such has already breached expectations.
Please note all rights of content of this summary are given to NGT.
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