UK Gas: Oversupply, Weak Crude Pricing Drags

Within-day gas drops 1.68 percent; forward gas contracts weighed down by weak crude.
 

British gas prices fell on Monday due to an oversupplied network on rising domestic and Norwegian deliveries, while weak crude oil prices dragged forward contracts lower.

"Weaker oil prices and a long (gas supply) system are pushing down prices and Gazprom's plan to offer new gas for winter certainly isn't helping," a trader at a major European utility said. "The bearishness continues."

Gas for day-ahead delivery fell 0.40 pence to 42.50 pence per therm by 0918 GMT, while gas for instant delivery declined 1.68 percent to 42.18 per therm.

The United Kingdom was oversupplied by 10.9 million cubic metres on Monday, with demand estimated slightly below seasonal average levels at 146.9 mcm, according to National Grid data.

Norwegian flows to Britain rose 7 mcm/day despite an unexpected outage restricting the country's production capacity by 5 mcm/day.

It remains to be seen whether the disruption will dampen a day-on-day rise in total Norwegian gas exports to Europe and the UK.

Norway's Troll gas field will undergo maintenance on Aug. 7, reducing production capacity by 110 mcm/day and likely cutting exports to Britain.

Output from the UK Continental Shelf exceeded the amount requested by consumers and shippers.

Domestic supply rose to 102 mcm/day, 7 percent higher than indicated demand, analysts at Thomson Reuters Point Carbon said.

An outage reducing injection capacity at Centrica's Rough gas storage site, Britain's biggest such facility, added to oversupply by preventing surplus gas being removed into storage.

Injection rates at Rough will be curbed by 20 mcm/day until 1700 GMT, Centrica said in a market message.

Further along the curve, gas for September delivery was 1.18 percent lower at 41.80 per therm. Crude oil prices fell to six-month lows, to $51.04 a barrel, on mounting evidence of growing oversupply, which weighed down seasonal gas contracts influenced by oil price moves.

Benchmark front-season winter gas dropped 0.48 pence at 45.25, extending losses from Friday.

Gazprom's plan to sell an additional 3.24 billion cubic metres of gas for the coming winter may help alleviate tight supply outlooks, adding further pressure on curve contracts.

In the Dutch gas market, August gas at the TTF hub inched 0.07 euros higher to 20.95 euros per megawatt hour, as the Dutch gas system was largely balanced.

In the European Union's carbon market, the benchmark price for December delivery rose 0.05 euros to 7.94 euros a tonne.

Reporting by Oleg Vukmanovic