Business Outlook 2018

After a summer dip in prices, the NBP day-ahead and month-ahead markets both entered a winter upturn that appears to be more pronounced in 2017-18 than in recent years. Traditionally, higher winter gas demand resulted in the UK becoming a much larger producer from the UKCS and net-importer from the continent than it is during the summer months, therefore driving up prices. However, the UKCS now meets a smaller proportion of domestic gas demand than it once did, and diverse sources of gas are more widely available through liquefied natural gas cargoes, interconnectors with Europe and domestic gas storage. This has led to the price differential between summer and winter months narrowing over the last decade until this year. Reduced storage capacity and a colder winter appear to be the leading structural causes for the return to seasonal swing in traded gas prices. In addition, there were some unexpected outages, most notably the explosion at Austria’s Baumgarten gas hub, which is a key distributor of gas across Europe, and the closure of the Forties Pipeline System in December, which led to around 20 per cent of UKCS gas production being shut-in. A combination of all these factors drove the average NBP day-ahead gas price to almost 60 p/th during December 2017. The cold snap, combined with unexpected supply disruptions, led to within-day prices exceeding 300 p/th in February 2018 – the highest in 12 years.

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Figure 5: Average Monthly Day-Ahead NBP Nominal Gas Prices

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Average Monthly Day-Ahead NBP Gas Prices (p/th)

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2017

2018

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Source: ICIS Heren

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