UK gas rises on energy rebound

LONDON: UK curve gas contracts rose in Friday afternoon trading as positive US retail sales figures further buoyed the oil market which has pushed up gas forwards three percent this week.

The British benchmark front-season gas contract rose to 69.50 pence per therm on Friday, up 0.10 pence on the previous session and three percent higher than trading levels at the start of the week.

Brent crude traded above $108 dollars, after sharp losses earlier this week driven by global economic growth concerns.

But the biggest jump in US retail sales in three months lifted the stock market and returned some confidence to the energy markets.

Winter 2011/12 technicals showed the contract's Moving Average Convergence-Divergence (MACD) signals moved closer together, hinting at a potential for further gains.

Deutsche Bank said in a report on Friday it expects Qatari liquefied natural gas (LNG) supply to Europe, a key source of gas for Britain, to tighten by early 2014 as the world's largest LNG exporter has signed a number of long-term supply contracts with Asian and South American companies.

"We believe this will contribute to the expected tightening in European gas markets by early 2014 as undelivered contractual gas is consumed," the bank said.

Closer in, British prompt gas prices mainly fell on Friday as traders expected outage-hit North Sea gas fields to resume production.

Within-day gas fell 0.35 pence per therm to 52.40 pence, with gas delivering on Monday trading at 51.95 pence, down 0.80 pence on the day.

Market talk of the Bacton Seal terminal resuming service this weekend or next week weighed on prompt contracts.

The gas market was four million cubic meters/day short on supplies at 1500 GMT following overnight drops in supply from most major sources.

Imports from Norway via the Langeled pipeline fell by 15 mcm/day to about 30 mcm/day, with a similar drop in Dutch deliveries, while the Centrica-operated Barrow South terminal received no supply.

The operator failed to return calls to explain the drop.

Returning flows from the Dragon liquefied natural gas (LNG) terminal in southwest Wales somewhat offset declines elsewhere, climbing to around 20 mcm/day from zero, which helped reinforce supply confidence.

In Britain's over-the-counter power market, day-ahead baseload gained 30 pence to 46 pounds per megawatt hour (MWh) amid a reduction in nuclear capacity.

EDF Energy reduced output from its 660-MW Heysham 2-7 nuclear unit to 200-MW to refuel.

Baseload power for winter 2011/12 delivery ticked 26 pence lower at 55.76 pounds. Healthy supply margins and rising contributions from wind kept the system comfortable despite limited nuclear capacity reductions.

Copyright Reuters, 2011