UK gas rises on low LNG output, nuclear outages

Mon Mar 19, 2012 7:54am EDT

Related Topics

* Prompt defies weak supply-demand fundamentals

* Market structure cuts out significant storage withdrawals

* UK temperatures forecast above-average in May, June

London, March 19 (Reuters) - British prompt gas prices rose on Monday morning as output from liquefied natural gas (LNG) terminals lagged expectations and fresh nuclear outages put pressure on gas plants to plug the gap.

Within-day gas prices defied the impact of a 6 percent drop in demand caused by rising temperatures, adding 1.25 pence to 61 pence per therm at 10:45 GMT, while Tuesday gas rose half a penny to 60.80 pence.

The structure of the near-term market incentivized operators to inject gas into underground storage sites, instead of drawing down inventories as typical during March, eliminating a key source of flexible supply which supported gains, a trader said.

Near-term prices were slightly discounted to the month-ahead contract at 61.20 pence, signaling more profit for traders that sell stored gas at a later date.

The market ignored downward pressures on price such as warm weather, oversupply, weak demand forecasts and resuming output from Statoil's Statfjord C oil and gas platform in the North Sea.

"LNG send-out is still low especially from the Isle of Grain terminal, despite a shipment expected this week - we would have expected flows to be higher" a gas market analyst said.

LNG terminals tend to increase output ahead of fresh deliveries as it clears space in storage tanks.

The Qatari tanker Al Thumama will dock at the terminal in southeast England on Wednesday.

A two percent rise in oil prices on Friday from ongoing tensions over Iran's nuclear program and threats to disrupt supply underpinned the gains in curve gas prices on Monday, a trader said.

The benchmark summer 2012 gas contract rose 1.25 pence on the day to 61.10 pence, shrugging off a dip in crude oil prices on Monday.

Britain and most of Europe will see warmer-than-average temperatures between May and June, Weather Services International (WSI) forecast on Monday, although April should see below-normal temperatures in the UK.

The UK gas market was 10 million cubic meters oversupplied earlier this morning, before balancing out later in the session.

In the power market, day-ahead baseload rose 45 pence to 47.2 pounds per megawatt hour (MWh) on Monday following another nuclear outage, bringing the total amount of idled nuclear capacity in Britain up to 3,910 MW.

That forced greater reliance on more expensive gas-fired power generation. More than 27 percent of the country's electricity was produced from gas on Monday, up from 23.1 percent on Sunday, reflecting the impact of the nuclear outage. (Reporting by Oleg Vukmanovic; editing by Jason Neely)

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