Day ahead (DA) NBP gas contracts rose by 26% month-on-month to 63.5p/therm on 3rd May 2021, in line with an uptick in gas demand due to lower than historical temperatures and a slowdown in global LNG exports to the UK. Furthermore, medium range storage sites for 2021 are significantly below the five year (2016-2020) average, which is currently creating some panic amongst market players.
The current winter 21 price contract holds a c.1p/therm premium over the DA contract, which is an unusual scenario for the UK gas market, considering last year the premium was in c.15p/therm region.
The summer months are usually a time when gas storage sites inject gas at lower prices in order for them to withdraw at times when demand is robust, and prices are higher, usually in the winter.
The current DA price premium to the July and August contract is 5p/therm, hence the incentive for storage sites to hold from injecting is financially attractive. However, if DA prices continue to stay elevated due to tighter supply flows and firm injection demand, then the spread with the winter contract will remain narrow. This could create a possibility that the UK enters the winter period with significantly lower storage levels than in previous years. Furthermore, If US and Qatari LNG becomes more profitable in Asia, then the UK could expect a volatile NBP gas market this coming winter.
