LONDON: Wholesale natural gas prices in Britain were lower on Tuesday morning in reaction to higher-than-expected imports from the Netherlands.
Gas for delivery on Wednesday was trading at 46.75 pence per therm at 0814 GMT, down 0.75 pence from the previous settlement. This was the contract's lowest level since Aug. 29.
Gas for within-day delivery was 0.30 pence lower at 47.10 pence per therm.
Contrary to analyst expectations, flows to Britain through the BBL pipeline from the Netherlands have increased even though Europe's market is tighter due to outages in the North Sea.
Planned maintenance is taking place until Wednesday morning at a Norwegian gas field, processing plant and receiving terminal which has reduced Norwegian flows to Europe.
To counter that lower supply to Europe, analysts had expected BBL flows to Britain to be reduced.
However, U.K. exports to the Continent through the InterconnectorUK (IUK) have helped to balance the European system.
Even though BBL flows are higher than expected, the UK gas system was still undersupplied by around 5 million cubic metres (mcm) on Tuesday, with flows at around 161.5 mcm/d and demand forecast to be 167 mcm, National Grid data showed.
Demand was around 4 mcm below the seasonal norm.
Further along the curve, gas for October delivery was 0.60 pence lower at 50.25 pence/therm. Gas for the Winter 2014-15 season was 0.58 pence lower at 59.70 pence/therm.
RUSSIA-UKRAINE
The UK gas market is watching developments in Ukraine for signs of potential disruption to European gas supply from Russia via Ukraine, which would push up forward curve prices.
On Monday, the European Union formally adopted a package of new sanctions against Russia, but said their entry into force would be delayed to leave time to assess whether a ceasefire in Ukraine is holding.
"If/when the sanctions come into force, which is likely, it could have a bullish impact on European gas prices especially if Russia counters with its own sanctions," said Francois Flament, analyst at Thomson Reuters Point Carbon.
If Russian gas supply to Europe through Ukraine is disrupted this winter for a prolonged period of time, wholesale gas prices could at least double, analysts at consultancy Energy Aspects said in a research note.
However, a short-term disruption lasting just a couple of weeks is more likely by the first quarter of next year, unless there is a lasting diplomatic breakthrough.
"We expect the political pressure to rectify such a disruption would be immense. For (UK gas), we forecast Q4 prices will average 59 pence/therm while Q1 2015 prices will be 64 pence/therm," the analysts added.
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