UK GAS-UK, Dutch prices plunge as strong wind, weak demand weighs

• The day-ahead was down nearly 26pc at 6.50 pence per therm and the June contract was 13pc lower at 8.40 euros/MWh.
• Low demand due to European public holidays and high wind power is driving the prompt prices lower and feeding through the rest of the curve, another trader said.

LONDON: British and Dutch wholesale gas prices plummeted on Friday morning, continuing a huge sell-off which started the previous day, as oversupply, weak demand and strong wind output weighed.

In the European benchmark gas market, the Dutch TTF hub, the day-ahead price slumped as much as 25pc to 2.33 euros per megawatt hour (MWh) while the month-ahead price tumbled by 13pc to 3.47 euros/MWh.

In the British gas market, the day-ahead was down nearly 26pc at 6.50 pence per therm and the June contract was 13pc lower at 8.40 euros/MWh.

"Prices are in freefall. There is no floor anymore," a gas trader said.

Heavy selling began on Thursday afternoon amid high temperatures, strong renewables generation and rising supplies from pipelines and liquefied natural gas.

Low demand due to European public holidays and high wind power is driving the prompt prices lower and feeding through the rest of the curve, another trader said.

The UK gas system also opened oversupplied by 21 million cubic metres this morning.

Peak wind generation in Britain is forecast at 13.8 gigawatts (GW) on Friday and 14.1 GW on Saturday, close to total metered capacity of 15 GW, Elexon data shows.

High wind output typically reduces demand for gas from power plants.

With temperatures forecast to fall slightly over the weekend, and wind power output expected to drop, there could be more demand for gas, which would give some upside to the market, Refinitiv gas analysts said.

However, inventory sites are at record full levels, leaving little room for the excess gas to be stored. Some traders are expecting European gas prices to go to zero or even turn negative, similar to the West Texas Intermediate (WTI) oil price move below zero last month.

Consultancy Energy Aspects said the European gas storage surplus had widened to 14.1 billion cubic metres (mcm) year-on-year, from 13.6 bcm at the start of the month.

"With European demand still weakened y/y by COVID-19, a further slowdown in supply will be key to slowing injections (into storage) to maintain some spare injection capacity - one of the few sources of system flexibility - for Q3 20," the analysts said.