NBP: Weak Demand To Keep Prices In Check Over 2014/2015
BMI View : Despite 2014 opening with a steep fall in the price of NBP owing to a milder-than-expected winter, we note that this is a price correction indicating the real level of gas demand in the UK and Europe once the effect of weather-related needs (exacerbated by limited gas storage capacity) has been stripped away. However, we expect prices to eventually stabilise and be supported by some slight increase in demand alongside economic recovery, and more importantly, the continued fall in domestic gas supplies that will increase the UK's reliance on more expensive gas imports. Continued weakness in gas demand from the power sector will keep any run-off in gas prices in check, notwithstanding any drastic changes in weather patterns. However, we highlight that the sector could see some increase in gas consumption as older coal-fired power plants reach the end of their production cycles in 2015 as stipulated by EU regulations. This would put some upward pressure on the NBP particularly in the second half of 2015.
Having been the first liberalised gas market in the region, sizable domestic gas production, access to both pipeline and LNG imports as well to markets in Europe, the National Balancing Point (NBP) has become one of the more favoured references for gas prices in Europe. While still not as transparent as the US' Henry Hub contract that is traded on the NYMEX, the relative liquidity of the exchange vis-a-vis others in the region and the rise in trade volumes for NBP makes it a good reflection of the supply/demand dynamics in Europe.
2000-2009: Rise And Crash
|Higher Import Requirement Contributes To Price Climb|
|Average Price Of Front-Month NBP (LHS, GBp/therm) & UK Net Gas Imports (RHS, bcm)|