LONDON: British gas for delivery this winter hit a 14-month low on Tuesday as euro zone debt fears dragged crude oil prices to matching lows and dented demand for natural gas.
Gas delivering in winter 2012 slumped to levels last seen in the first-quarter 2011 at 63.85 pence, losing about 15 percent since the latest downtrend began in March.
Long-term gas prices lag movements in the price of oil by up to six months, but sharp drops in oil markets often feed more directly into the forward gas curve.
A renewed loss of confidence in the euro zone's growth prospects, with fallout on US and global economic outlooks, pummeled oil prices to below $95 a barrel on Tuesday as traders expected fuel demand to weaken.
That, combined with an oversupplied European gas market and analyst forecasts of still lower demand to come, weighed on long-term gas prices.
Rapid stockpiling at gas storage sites across the UK also reinforced the view that the market will remain well supplied in 2012 and 2013, a UK gas trader said.
Inventories at Britain's biggest storage facility Rough matched last year's levels at 73 percent full.
Day-ahead gas slumped 0.35 pence to 53.65 pence due to rising supplies from Norway and the Netherlands, while reduced heating demand due to warm weather reinforced the downward trend.
Within-day gas, which is for immediate delivery, fell 1.15 pence to 53.75 pence.
The planned restarting of two Japanese nuclear reactors for the first time since the Fukushima accident provided some relief to the outlook for liquefied natural gas (LNG) deliveries to Britain.
"Japan's decision to restart some nuclear reactors means there could be more liquefied natural gas (LNG) cargoes heading to the UK," the trader added.
LNG demand in Japan, which was already the world's top LNG importer, skyrocketed after Fukushima as it was mainly gas plants that provided the electricity to make up for production lost as nuclear plants shut down as a precaution following the accident.
Rising Asian demand for LNG continues to pull cargoes out of Europe to the Far East. Asian LNG demand is growing at 20 percent year-on-year as equivalent European demand drops by the same extent, Bernstein Research analysts said on Tuesday.
Unlike UK gas traders, Bernstein analysts expect global LNG markets to remain tight until at least 2016 despite nuclear restarts in Japan, suggesting little improvement in Britain's ability to win cargoes.
Despite conflicting LNG outlooks, the UK market appears oversupplied due in part to recession-induced demand destruction, and traders do not expect that to change.
Imports from Norway were set to improve on Tuesday after gas system operator Gassco said its Aasgard field resumed production following maintenance.
Production at Aasgard dropped by 24 mcm/d on Monday following a shutdown at midnight, which lasted 24 hours.
Gas demand was one quarter below levels usually seen at this time of the year as ongoing maintenance on the IUK pipeline sending gas to Belgium continued to weigh on export demand.
In the power markets, day-ahead baseload electricity traded at 41.60 pounds per megawatt hour.
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