Unexpected supply disruptions send UK gas prices soaring
18 December 2017, News release from Utilitywise
A series of significant disruptions to Norwegian, Austrian, and UK gas supplies have coincided with the coldest temperatures of the winter so far, prompting a substantial spike in gas prices.
The front-month gas contract for January rose nearly 20%, with prices for the rest of Q1 2018 also up more than 15% during trading today. Front-month gas prices hit four-year highs of 72p/th, in levels not seen since December 2013.
Gas demand over the last two days has been at 380mcm, the highest levels for three years, as a severe cold snap brought snow and ice to Britain. Day-ahead gas prices spiked to four-year highs on Monday, in anticipation of the cold temperatures, as the UK sought to attract sufficient imports from Europe to meet the higher demand. Interconnector imports from Belgium are close to maximum levels today at 60mcm. Dutch imports via BBL doubled to 40mcm as well.
Disruption in the pipeline
However, the main driver for the price spike has been the announced shutdown of the Forties pipeline system for “weeks” after a crack was discovered. Around 40% of UK gas and oil production from the North Sea is dependent on the Forties pipeline system to deliver supply to the British mainland.
Pressure on the system was reduced from last Wednesday after a crack was discovered. North Sea gas production has subsequently fallen 35% since then. Medium-range storage has been required to meet the shortfall, with storage sendout today reaching a record high of 75mcm – around 5% of the UK’s total gas reserves.
The unplanned Forties breakdown has resulted in unplanned supply disruption at Visund, Kvitebjorn, Valemon and Oseberg in Norway and at the Easington terminal in the UK.
Disruption at Baumgarten gas station
This morning Statoil also confirmed a power failure at the Troll gas field, reducing available production by over 30mcm. Scheduled maintenance at the Kollsnes processing plant was also ongoing today.
In a separate incident today an explosion at one of Europe’s largest gas terminals disrupted supplies in central Europe. An explosion at the Baumgarten gas station in Austria has left one person missing and at least 18 injured.
Baumgarten is one of the main terminals at which Russian natural gas enters Europe and the facility transports the equivalent of around 10% of total European gas demand. Italy, which is dependent heavily on flows through Austria, is set to declare a state of emergency over its energy supplies. However, Italy has substantial storage reserves which will cover any short-term interruption in supply.
The impact of disruption: UK gas prices sent soaring
The combination of the cold temperatures increasing heating demand and the unplanned supply outages has placed the UK energy system under severe stress in the last two days.
System breakdowns are more common during such harsh weather conditions but these developments have raised concerns over the viability of the UK gas infrastructure. The country’s largest storage site, Rough, has now closed as the 40-year old facility reached the end of its operating life. This already left the UK with limited supply flexibility heading into this winter season. Today’s additional problems have exacerbated this and prices have pushed substantially higher in response.
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