UK gas up as German nuclear u-turn may lift demand

LONDON Tue May 31, 2011 8:07am EDT

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LONDON (Reuters) - British curve gas prices rose on Tuesday as Germany's decision to permanently shut down its oldest nuclear plants is set to increase the short-term demand for gas in Europe's largest economy.

The German government on Monday announced plans to permanently keep offline eight nuclear power plants that contribute around 40 percent of the country's nuclear capacity and to shut all remaining plants by 2022.

"As more and more countries decide not to continue with nuclear power we will need more flexible gas plants to cover the intermittent renewables," one British energy trader said.

"More gas demand pushes prices up and the UK will need to compete to attract liquefied natural gas (LNG) and pipeline gas."

British gas for delivery next winter rose 0.80 pence on Tuesday to 71.95 pence per therm as of 5 a.m. ET, up 4 percent in one week and the highest in six weeks.

Power prices in Germany jumped nearly four percent with the baseload year-ahead power price trading at an eight-week high on the electricity exchange.

Prompt UK gas prices posted milder gains as the system was well supplied, but ongoing North Sea infrastructure maintenance added a risk premium.

The large Ormen Lange gas field off the coast of Norway was shutting down on Monday to start maintenance work which is expected to last until June 17.

The field can produce the equivalent of a fifth of Britain's gas needs.

Norway's Statoil also shut down its Oseberg North Sea oil and gas field which is set to restart production in the first half of June, the operator said on Monday.

The field feeds gas into the Vesterled pipeline, which connects to Scotland's St Fergus terminal.

At the same time, planned maintenance on the Heimdal Riser platform, a transport hub for the Vesterled pipeline, finished on Monday.

The outages lifted within-day gas prices on Tuesday, which rose 1.10 pence to 58.75 pence, while Wednesday gas traded at 58.60 pence.

But traders said the system was well supplied despite maintenance outages and that warmer temperatures in the south east of Britain are expected to weigh on demand levels.

Input from LNG terminals was strong and supply is expected to remain steady as a number of cargoes arrived at UK terminals over the past three days.

National Grid data showed UK gas demand was 8.8 percent lower on Tuesday morning than average norms.

In Britain's over-the-counter power market prices rose as an unexpected nuclear reactor outage tightened supply margins, but gains were capped by strong wind power production forecasts for Wednesday, traders said.

The 620-megawatt (MW) Hartlepool 1 nuclear unit went offline for an unplanned outage on Tuesday morning, operator EDF Energy said.

"There's plenty (of wind) going into tomorrow, but it's relatively low at the moment," one UK power trader said.

Wind power production is set to reach up to 1,900 MW on Wednesday, National Grid data showed.

The 1,000 MW BritNed power cable is set to return to full capacity on Wednesday.

The British-Dutch interconnector shut down unexpectedly over the May 21-22 weekend and restarted at reduced capacity of 500 MW on Saturday.

(Reporting by Karolin Schaps; editing by Jason Neely)

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