LONDON: British wholesale natural gas prices for delivery next winter dropped to record lows on Wednesday morning as the country's storage facilities filled further due to low demand, providing a cushion for potential winter supply disruptions.
Gas prices for delivery during the upcoming winter 2014/2015 season were trading at 56.35 pence per therm at 0845 GMT on Wednesday, 0.6 pence below their last close and their lowest level since the contract began trading in 2011 and over 20 percent lower than at the beginning of the year.
Traders said the price drops were largely a result of healthy gas storages.
"The healthy outlook for supplies during the summer together with the potential for long range storage to be full much earlier than in previous years is knocking further value off the front season, trading at a record low for the contract," one gas trader said.
Britain's gas storage sites are currently filled to an average of 84 percent, or over 4 billion cubic metres (bcm), compared with a level of under 2.5 bcm at this time last year, according to industry data.
Traders said weaker oil prices following reports of improving Libyan supplies also had a bearish impact on gas prices.
Front-month Brent crude prices were trading at $112.15 per barrel on Wednesday morning, down from over $115.5 a barrel in late June.
SPOT PRICES ALSO DOWN
Prices in Britain's spot market also dropped, with gas for delivery the next day down over one pence per therm to 37.90 pence a therm and within-day delivery contracts 0.85 pence weaker to 38.10 pence per therm.
"Gas demand in general is entering the year's lowest demand period in July and August and immediate demand is dropping further as the coming two days are going to see quite warm weather," one gas trader said.
Heating demand for gas is expected to drop from 60 million cubic metres (mcm) per day on Wednesday to just over 50 mcm by Friday as average temperatures are seen to rise from the current seasonal norm around 15.25 degrees Celsius to 18 degrees, Reuters data shows.
While the demand outlook further weakens, the amount of liquefied natural gas (LNG) coming into Britain is rising, with five tankers expected to arrive by July 11, carrying enough gas to meet 6.5 days' worth of current daily gas demand.
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