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ENG: Third-quarter 2017 basis stays negative

22 Mar 2017 19:51 GMT
ENG: Third-quarter 2017 basis stays negative

London, 22 March (Argus) — The third-quarter 2017 basis market has turned negative in recent days, which could offer less incentive for UK exports to the continent.

If Rough returns on 1 July it could leave the UK with less spare supply to offload through the Interconnector, depending on the number of wells available. But a delayed restart — or Rough not resuming operations at all this storage year — could result in Interconnector flows testing full capacity and NBP prompt prices disconnecting from Zeebrugge later in the summer.

UK consumption — including Moffat deliveries — was lowest last summer in August at 120mn m³/d, but could fall to closer to 115mn m³/d this year given the expansion of embedded renewable capacity. And there could be little injection demand in August if Rough is unavailable as there would have been a window to fill mid-range sites in June.

Even with consumption lowest in August, the UK may not have most supply to export this month because maintenance typically curbs domestic production despite no full shutdown of the Forties Pipeline System scheduled this year.

Consumption could also be below 120mn m³/d in July, down from 125mn m³/d a year earlier, given the decline of power sector gas demand.

The UK could have over 150mn m³/d from domestic production and Norway, assuming deliveries broadly in line with a year earlier. Norwegian receipts could be even higher in July this year with little scheduled maintenance, and after Statoil cut Troll production in June-September 2016 when prompt prices fell to a wide discount to forward contracts.

South Hook sendout was 29.5mn m³/d in July 2016, but European LNG receipts could rise this summer with the ramp up in global liquefaction capacity.

Even assuming 150mn m³/d from domestic production and Norway along with sendout of 29.5mn m³/d it would leave the UK with aggregate supply of almost 180mn m³/d compared with consumption of 120mn m³/d. Mid-range sites filling in June would leave little flexibility to adjust domestic demand, providing Rough is unavailable, leaving about 60mn m³/d to export to the continent in this scenario.

This would be close to the Interconnector's 630.1GWh/d technical capacity to Zeebrugge and could result in the UK struggling to offload any extra supply, particularly during low demand periods such as weekends.

The Interconnector also reached full capacity last summer, with the everyday basis market as wide as +8.15p/th in early September 2016 as NBP prompt prices disconnected from continental hubs.

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Third-quarter 2017 basis holds negative p/th