UK natural gas prices for same-day delivery spiked as high as 150 pence/therm ($22.80/MMBtu) early Friday as a key pipeline that carries gas to the country from Continental Europe halted operations against a backdrop of cold weather and low storage stocks.
The price of 150 p/th is more than double the 69.19 p/th average within-day price seen in February. It far exceeded spot gas prices in Asia and the US. The Platts Japan Korea Marker for the second half of April, the first assessment period, was at $15.90/MMBtu, while the Platts US national average price for flow on Friday was $4.15/MMBtu.
As recently as Wednesday, the UK-Belgium Interconnector flowed a record 783 GWh of gas into the UK, or 74 million cubic meters, approaching a quarter of recent UK demand levels around 300 million cu m/day.
Both the Interconnector and the Dutch BBL pipeline have been key sources of supply during the current winter, when LNG deliveries have been low compared with last year. LNG suppliers have been targeting higher prices in Asia and South America instead of northwest Europe.
But early Friday, flows through the Interconnector, which would have been expected to continue at strong rates, dropped to zero.
There was a failure at 0700 GMT at the Bacton receiving terminal for the pipeline, which flows gas from Zeebrugge in Belgium to Bacton in the UK.
A connection to a pump on the hot water system, which heats the gas from the pipeline before it enters the UK system, failed, and the resulting steam escape triggered a shutdown of operations, operator IUK said.
Flows started to return in the early afternoon, before the pipe was taken out of action again from around 1400 to 1500 GMT for further work, which allowed it to build back up to full capacity from 1500 GMT onwards, after an interruption lasting around eight hours in total.
At 1730 GMT it was back at full capacity of at 76 million cu m/day. UK within-day gas was closed at 1630 GMT at 99 p/th, still high, but down 51 p/th from the morning peak.
National Grid forecast UK gas demand for Friday around 347 million cu m in its 1700 GMT figures, compared with a seasonal normal of 271 million cu m by an unusually cold start to the spring, with the frigid weather expected to continue in the coming week.
The loss of such a major supply source caused concern, but market sources and the government said the UK could cope.
"We'll exhaust what we can. Rough [storage is] up to capacity of 37 million cu m, we'll have full imports [from Norway and the Netherlands], medium range storage and LNG, but we're still going to be short so they're going to have to reduce demand by asking intermittent contract holders to turn off," an energy analyst said in the morning, when the duration of the outage was unclear.
In the event of a long-lasting gas shortage, suppliers can cut off flows to major users such as factories, or power plants can switch fuels, to ensure there is no disruption to households.
The UK Department of Energy and Climate Change said: "We are aware of the temporary disruption [to the Interconnector] ... We have diverse sources of gas for this very reason and there is sufficient capacity to cover these kinds of events."
System operator National Grid told Platts the market was responding to the outage. Grid's data website showed that Rough storage increased delivery to its current maximum of around 37 million cu m/day and Holford storage came on at over 20 million cu m/day. The Dragon LNG terminal, which has been largely inactive this winter, flowed out at over 15 million cu m/day.
South Hook and Grain LNG did not step up flows, but probably had further potential.
In the end, the Interconnector's eight-hour outage took it out for around a third of the day, meaning a loss of around 25 million cu m of supply for the day, based on the recent record 74 million cu m/day flow rates.
That was not a major loss in itself, with the storage facilities and LNG suppliers able to step up flows. But the longer such a loss lasted, the lower storage and LNG stocks would have fallen.
Gas Storage Europe shows UK gas stocks at only 10.6% of capacity.
The Rough facility holds around 2,684 GWh or 254 million cu m of stocks, according to National Grid data, while medium-range facilities hold 2,385 GWh or 225 million cu m and there is the equivalent of 4,391 GWh or 415 million cu m of gas in the tanks of LNG import terminals such as Dragon, South Hook and Isle of Grain.
Two Qatari LNG tanker deliveries are expected soon: the Mekaines to Grain and the Zarga to South Hook.
UK April NBP prices of $10.75/MMBtu do not yet, however, look generally attractive for LNG supplies compared with Asian levels.
The UK's nearest LNG producer, Norway's Hammerfest, has been out for maintenance in recent weeks.
Sean Waring, the managing director of IUK, said: "We understand the seriousness of a disruption like this in the current tight energy markets. To date, Interconnector has demonstrated a high level of reliability, but operational upsets do occur from time to time in complex [facilities]. Our immediate response enabled us to restore flow to full capacity quickly."
