Last week, natural gas prices for the UK NBP month-ahead contract climbed to a strong premium versus Europe's benchmark, the Dutch TTF hub.
This was due to market participants eyeing higher temperature-related winter demand and a need to secure LNG cargoes in a competitive market.
Platts, part of S&P Global Commodity Insights, assessed the UK NBP November contract at €39.32 per MWh on 9th October, while the Dutch TTF November contract was assessed at €38.59 per MWh on the same day.
Market sources pointed to an expected rise in demand next month, alongside a requirement for additional LNG volumes, as key drivers in NBP price hikes relative to the continent.
"For the NBP, the delivery month itself means more," one UK-based trading analyst said. "The big change is because the month-ahead moved from October (still relatively low demand) to November (strong pick up expected on proper winter, so more LNG needed to balance)... I think the November NBP-TTF might come down, if we see a lot of LNG or a mild weather forecast."
"LNG and demand are the main cause," a European gas trading analyst said, also pointing to storage injections picking up given the contango between the NBP day-ahead and month-ahead contracts.
"It's always pushed up in case of lower seaborne supply, or higher consumption, to motivate flows from the continent to be hedged," a Netherlands-based trader agreed.
Commodity Insights analyst, Elizabeth Kunle highlighted a tighter balance in the UK driven by high winter heating demand alongside low LNG arrivals into Europe, which favoured northwest European and Italian terminals over the UK.
Looking ahead, she added; "the premium may encourage the UK to import from continental northwest Europe in November... and increase LNG supplies to meet heating demand. This could be a short lived trend, with NCS supply quite robust this year, we forecast net exports of 7 mill cu m per day from the UK to CNWE in November."
Stable winter
On the demand side, the UK is projected to remain stable this winter, aligning with weather-adjusted levels from the previous winter at around 39 bill cu m, according to the UK’s National Gas Transmission (NGT) on 8th October.
The UK’s natural gas price strength has also come at a time where northwest European LNG players are bidding higher to remain competitive in the global market.
Platts assessed the DES Northwest European marker for November at $12.204 per MMBtu on 9th October - an 18.5 cents per MMBtu discount versus the Dutch TTF gas hub price.
UK LNG imports totalled 500,000 tonnes, or seven cargoes, in September - the strongest level seen since February, Commodity Insights data showed.
According to Commodity Insights, the UK is expected to import two more cargoes this month; one cargo of 70,000 tonnes on 15th October from the US, followed by another cargo of the same volume from Peru on 27th October.
The earlier cargo is being shipped by ‘Vivit Arabia LNG’, which was originally heading for Bangladesh, before being rerouted to the UK, according to S&P Global Commodities at Sea data.
Although LNG supply into Europe has improved, traders were seeing sellers with the shipping length and flexibility optimising their volumes and switching them to the most competitive demand hubs.
While the market expects demand to be weaker this month versus September, UK buying activity was being eyed for November volumes with expectations that domestic gas and LNG prices will strengthen to pull in the necessary volumes for this winter, with November and December being the key months for cargo imports.
"The UK is expected to remain a steady importer of LNG through the long term," analysts at Commodity Insights said. "Its ample regasification capacity, proximity to other European markets, and large liquid gas hub trade create a variety of reasons for why LNG demand can remain supported in any given year."
