LONDON: British wholesale natural gas and power prices rose on Tuesday morning as relatively cold weather and low imports from Norway left the system undersupplied.
Gas prices for delivery within Tuesday as well as for use on Wednesday were both trading at 43.50 pence per therm at 0830 GMT on Tuesday, up 1.5 pence since their last close, and power prices for baseload (24 hours) delivery on Wednesday were up 1.5 pounds per megawatt-hour (MWh) to 39.25 pounds ($65.05) a MWh.
Traders said that the higher prices were a result of healthy demand being met by relatively low supplies, leaving the system undersupplied.
Britain's gas demand was expected to be around 172.3 million cubic metres (mcm) on Tuesday, half a percentage point above the seasonal norm, according to National Grid data.
With supplies of only 156.4 mcm forecast to come in, the system would be left almost 16 mcm undersupplied.
"Norwegian imports are still pretty low with Langeled's 70 mcm capacity running at below 20 mcm, so that's leaving the system somewhat short despite improved British North Sea production following the end of some maintenance work, pushing up prices," another gas trader said.
"Gas flows from the Netherlands are also down due to maintenance at the BBL pipeline," he added.
Britain's slightly above usual gas demand is largely a result of cool weather that has dominated the region for the past weeks.
Meteorologists say they expect average temperatures to linger around the seasonal norm of 15-16 degrees Celsius until mid-September.
Further out on the curve prices also rose, with contracts for delivery in the upcoming peak demand winter heating season up around 0.6 pence to 60.60 pence a therm.
"Ukraine continues to be a driver for European gas prices, and with little hopes of the EU, Ukraine, Russian meetings in Minsk resulting on a solution of the wider conflict or the gas dispute, a risk premium is entering the gas market as we get closer to the end of summer and the beginning of winter," one gas trader said.
Europe meets almost a third of its gas demand through imports from Russia, around half of which is sent via Ukraine, so a disruption of those flows would cause a supply squeeze, especially in central and southern Europe, where there are few alternatives to Russian supplies.
Britain would be less affected by such a cut as it still has its own production and receives most of its pipeline imports from Norway and also buys large amounts of Qatari liquefied natural gas (LNG).
Additionally, Britain's gas storage tanks are filled to an average of almost 95 percent, enough to meet over two week's worth of demand, and up from only 55 percent fill rate at this time last year.
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