London - British wholesale gas and power prices remained near record highs early on Wednesday as cold weather and low import and storage supplies left the system tight.
Gas prices for delivery within the day were trading around 98 pence per therm at 11:00 Sa time, up around 5 pence since Tuesday morning. Prices for next-day delivery were up almost 5 pence to 97.50 pence per therm.
Britain's gas demand was expected to be 357.2 million cubic metres (mcm) on Wednesday, almost 28 percent above the seasonal norm, according to National Grid.
With flows adding up to 376 mcm, the system was expected to be slightly oversupplied but largely because of further storage withdrawals, analysts said.
Britain's gas storage sites were filled to an average of 17.9 percent on Tuesday evening, down from 21.5 percent at the beginning of the month and from over 86 percent in early January.
“We can't balance the system much longer with storage supplies, so unless spring really pulls up temperatures soon or imports from Norway and LNG (liquefied natural gas) improve fast, we may have an outright supply crisis soon,” one gas analyst said.
The UK's Met Office said that it expected temperatures to rise slightly by the end of the week but remain below the seasonal norm next week.
In the North Sea, gas supplies form Norway have dropped further, and production at Centrica's South Morecambe field in the Irish Sea will be halted on Thursday due to planned maintenance from 05:00 SA time until 01:00 SA time, the company said on Wednesday.
Supplies in LNG are also low, with only two tankers with a combined capacity of around 300,000 cubic metres expected to arrive in Britain, Belgium and the Netherlands this month.
But traders said that this may change as the high gas prices in Britain have made the UK more competitive with Asian spot LNG prices.
Japanese and Korean buyers currently pay around $16.90 per million British thermal units (mmBtu), compared to around $14.50 per mmBtu in Britain.
“The difference between Asia and Britain is now largely down to freight, so we could see some Atlantic suppliers such as Nigeria or Trinidad sending some tankers to Britain instead of Asia,” one LNG analyst said.
GAS SENDS POWER HIGH
High gas prices also impacted Britain's power market, where prices for baseload (24 hours) delivery the next day rose above 70 pounds ($100) per megawatt-hour, their highest level since the fourth quarter of 2010.
Traders said that the power price rise was a result of the tight gas market and because of high demand from continental Europe, where cold weather has also lifted demand.
“The high gas price amounts for a significant proportion of the power price move, the rest is capacity competition with France,” one UK-based trader said.
French day-ahead baseload power prices were trading at almost 80 euros ($100) a MWH on Wednesday morning, almost at parity with Britain when currency adjusted.
While power and gas prices are high, the coal market remains depressed as a result of global oversupply, and as a result coal-fired power generation in Britain is much more profitable than gas.
Electricity produced from coal and for sale the next quarter now generates a revenue margin of almost 24 pounds per MWh, around 20 pounds more than the equivalent gas margin around 3 pounds a MWh. - Reuters