UK Wholesale Spot Gas Prices Reach 2010 High

LONDON, November 29, 2010 /PRNewswire/ -- Spot UK wholesale gas prices on Monday reached the highest level of 2010 as the key Day ahead contract traded at 57.25 pence per therm. This is the highest level since February 2009.

UK wholesale prices have been increasing in the past week because of a rapid rise in demand for gas triggered by falling temperatures. Demand for gas from local distribution zones, which includes residential heating, has more than doubled since the start of the month.

Monday's total demand was almost 26% higher than the normal level for this time of year. It was the highest demand for any day in November on record.

The Day-ahead price has increased by almost 29% since the start of November.

Demand stood at 432 million cubic metres on Monday morning. The normal level for this time of year is 344 million cubic metres. In November 2009, daily demand averaged 299 million cubic metres/ day.

Demand reached an all-time high earlier this year on 8 January at 465 million cubic metres.

The price for the first quarter of 2011 reached 55.45 pence per therm on Monday, compared with the 49.9 pence per therm average over the winter period to date.

"Spot prices are rising because of the extremely high level of demand but the gas system has responded well to the challenge. An increase in imports from continental Europe and Norway has combined with higher LNG and storage deliveries. This means the UK currently has more than enough gas," said Edward Cox, Editor of European Spot Gas Markets at ICIS Heren.

Demand is expected to stay well above normal levels for the rest of the week. The Met Office issued a severe weather warning covering the entire east coast of the UK on Monday. By Friday, Scotland is expected to freeze as daytime temperatures plummet to minus eight degrees.

On Monday, around 22% of UK demand was covered by LNG supply. LNG is gas which is converted into liquid form and can then be transported by ship to any country which has an appropriate receiving terminal.

Norwegian gas represented approximately 20% of UK supply with storage covering around 14%.

The UK is becoming more dependent on gas imports as North Sea reserves decline.

Gas is one of the major raw materials for UK electricity production. Electricity suppliers buy their gas at wholesale prices, so short-lived price spikes will not affect consumer prices directly. However, if wholesale prices stay high with stronger demand, this increase could feed through to retail prices.

The wholesale price hikes come at a time of heightened sensitivity around energy retail prices after British regulator Ofgem announced its intention to investigate competition in residential energy markets, following an estimated 38% increase in suppliers' profit margins.

Note to editors:

Demand data is taken from the National Grid website.

The majority of wholesale gas bought and sold in the UK is done on a spot basis. Major utilities who buy gas in order to produce electricity are involved in hedging. This means they will typically buy a certain share of their gas on the forward market which includes contracts such as the next month or the next quarter/ season.

ICIS Heren is an information service provider for gas, liquefied natural gas, power, carbon and coal market intelligence. We publish a suite of tailored reports providing news, analysis, benchmark price assessments and indices. Through our reports we aim to bring liquidity and transparency to power and gas hubs, helping you analyse the sector and make informed business decisions.

For more information visit http://www.icis.com/heren

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    Edward Cox
    Editor - European Spot Gas Markets
    ICIS Heren
    t: +44-20-7911-1772
    e: [email protected]

    http://www.icis.com/heren

SOURCE ICIS Heren