Updated: Injections at British Rough delayed until 30 June at least

The British NBP front summer-winter spread has widened after Centrica Storage announced that Britain’s largest natural gas storage facility Rough will not be available for injections until at least 30 June, one month later than previously expected.

The loss of injection demand means the British prompt market will be more prone to weakness, and particularly quick price drops driven by over-supply, in the early months of the summer.

Centrica Storage cited, among other reasons, the age and condition of the facility as one of the main reasons for the delayed start up of the storage injection period that usually commences at the beginning of the second quarter.

It plans to complete its calliper and well testing by 30 April and aims to have the subsequent analysis of the 24 wells completed by 30 June. Only then can it be determined whether or not the facility is fit for injection operations.

Rough’s maximum technical capability will be announced by 28 February, Centrica Storage said.

Market impact

The loss of injection demand was bearish for the May ’17 and June ’17 contracts, which dropped in a broadly bullish market.

May was dealt at 44.6p/th, 0.05p/th lower than Wednesday’s close while the June product fell by 0.275p/th to 43p/th.

The losses on the two products filtered out to Q2 ’17 and Summer ’17, both of which May and June are constituent parts off.

Winter delivery products were significantly more bullish, as the market interpreted the loss of injections as a signal that Rough’s winter performance would also be hampered.

Winter ’17 was dealt 5.9p/th higher than Summer ’17 in the morning, after closing at a 5.1p/th premium on Wednesday.

The UK power market reacted in similar fashion as traders priced in a need for gas plants to run competitively against coal. Winter ‘17 was strong on Thursday afternoon from the previous day’s close, but Q2 ‘17 down slightly.

Fundamentals

a lack of injections into Rough through much of the summer reduces the ability of the British market to cope with oversupply and increases the potential for large price drops on the NBP prompt.

“It could be a rerun of September-October where the UK spot price continued to plummet until it incentivised shippers to either reduce input into the system or export to the continent,” Nick Campbell, analyst at Inspired Energy said.

The Belgian Zeebrugge-NBP Day-ahead basis dropped to a multi-year high in September 2016 when Rough was offline following its June shutdown. As a result, exports via the Britain-to-Belgium Interconnector pipeline ran at maximum capacity for a number of days.

The Summer ’17 basis was traded at -0.2p/th on Wednesday morning, 0.25p/th higher than Wednesday’s closing assessment.

“I think volatility will increase however, with even more focus on foreign exchange as the UK will continue to be reliant on importing from the continent,” Campbell added.

Medium-range sites in Britain will likely have to adopt a more typical summer injection profile as they fill Rough’s void. thomas.rodgers@icis.com and marcello.kolax@icis.com