Over Tuesday morning the price of gas for immediate delivery fell 4 per cent to lows of 43.40 pence per therm, traders said, pricing levels not seen in almost 4 years. Meanwhile, gas for day-ahead delivery edged back down towards the near three-year low seen last week at 43.80 pence to change hands at 44 pence.
An analyst note from gas flow specialist Bentek said the UK’s gas system opened with an oversupply of available gas due to lower than average seasonal demand causing prices to slump.
In addition, pricing agency Icis note that three liquefied natural gas (LNG) vessels are due to arrive into the UK over the next week, which could result in further losses to the price of gas for delivery in June.
Tuesday’s bearish trading session follows weeks of downward trading activity due to the mild winter and ample remaining storage levels, meaning there is little need to buy gas now to replenish storage in time for the coming winter.
Tuesday’s low of 44 pence for day-ahead gas is 4.5% lower than the average month-to-date price of 46.08 p/th seen over May, data from price reporters at Platts shows. In turn, the average price this month is over 30% lower than the average price for May 2013.
Platts data shows the most recent day-ahead price, when compared to prices averaged over a month, is the lowest since September 2010’s average of 40.81 pence for day-ahead gas.
The historically low gas prices mean that profits from gas-fired generation have increased, allowing a greater proportion of gas plant use compared to coal-fired generation.
Typically very little gas-fired power generation occurs over the low demand periods during the night because the system can meet demand using only nuclear and cheaper coal-fired power. But as gas price continue to fall the more efficient gas plants are able to compete with older, less-efficient coal-generation meaning increased night-time use of gas-fired plants has become more commonplace, a trader said.
Last week, analysts at Thompson Reuters Point Carbon said in a note that prices are expected to remain bearish through the summer. However, scheduled maintenance at Norway’s Ormen Lange gas processing plant from May 23 to 29 should limit imports helping to stem further losses a separate market report said Monday.
Uncertainty over the outcome of presidential elections in Ukraine on Sunday 25 May could also provide a risk premium for gas delivered in June, the analysts said.