Tests on Dutch gas link could spark fall in UK price:
The price of gas in the UK is expected to come under further sustained pressure when testing begins within weeks on a new pipeline linking Britain and the Netherlands. Signals that pressure-testing of the Balgzand-Bacton pipeline (BBL) might start as early as the end of this month caused a dip in forward gas prices for November and December last Thursday. Electricity prices for November also fell as power traders began to anticipate that generators would have better fuel supplies this winter. Pressure testing of Langeled, a new pipeline from Norway, caused the spot gas price to collapse in September. Extraordinary volumes were pumped into the network on a warm day, forcing National Grid to pay shippers to remove gas from the system, a highly unusual measure that sent the price plunging into negative territory, at one point reaching minus 5p per therm. Mounting evidence that Britain will be better supplied with gas this winter is still feeding through very slowly into the forward gas market, with the price of December gas still relatively high at 67p per therm. Gas analysts reckon that the market has further to fall, but traders remain nervous about the winter, fearing shortages during sudden cold snaps. Underlying the anxiety is the missing piece in the supply demand jigsaw. The behaviour of the Norwegian and Dutch gas exporters. Simon Blakey, a senior director of Cera, the energy consultancy, reckons that there will be additional capacity of 119 million cubic metres per day for the coming winter from Langeled, BBL and expansion to the existing Bacton-Zeebrugge interconnector pipeline. However, capacity does not equal delivery. “It is not clear how much gas will be available physically and commercially to fill the new capacity,” he said. When the British gas price plunged into negative numbers last September, Norsk Hydro's engineers were testing the pipe at maximum capacity of 70 million cubic metres per day, but such volumes depend on ample sources of gas. Those will not be available until late next year, when the pipeline is finally linked to Ormen Lange, a new gasfield in the Norwegian Sea that is earmarked for UK sales. Until then, Britain will compete for existing Norwegian gas reserves, most of which are contracted for sale to German, French and Belgian utilities. Gasunie, the Dutch utility that is building the BBL link, has agreed a ten-year contract with Centrica to deliver five billion cubic metres of gas this winter and further deliveries could come from E.ON-Ruhrgas and Wingas, the other shareholders in BBL. Wingas is a joint venture between BASF and Gazprom, of Russia, which is anxious to increase its UK presence. However, the willingness of continental utilities to respond to British pricing and demand is still unclear. They showed last winter that greed was tempered by fear as the need to keep domestic storage facilities full prevented them from exploiting high prices in the UK. According to Mr Blakey, gas flows through the interconnector were well below potential early in the winter, causing price surges and, eventually, Britain's first ever Gas Balancing Alert, when the grid operator sounded warnings of an impending physical shortage. Flows began to increase, reflecting greater confidence among continental utilities that they could ship gas to the UK without jeopardising their obligation to domestic markets. Mr Blakey predicted: “This pattern of behaviour is likely to be repeated in 2006-07” Ministers may compel Britain's main energy suppliers to hold emergency reserves of gas to ensure that supplies to industry and consumers are secured through the winter, a Government paper will suggest today. 16.10.06