London - Britain’s heating season has started with a bang, as natural gas contracts reverse a two-year slump.
Gas for next-day delivery in the UK is on its longest rising streak since at least 2007, when records of broker data compiled by Bloomberg began. The contract has added 23% this month, after rising 52% in September in the largest monthly gain in at least nine years.
Prices for the heating fuel have gained amid cold weather and the longest dry spell for liquefied natural gas imports in two years. The UK didn’t receive any LNG cargoes in the first half of October as tankers instead sailed to markets where they could fetch higher prices, leaving less supply for Britons turning on their heaters for the first time since last winter.
“The start of the northwest European heating season has overlapped with strong demand for LNG from Asia as they replenish their stocks,” reducing cargoes to the UK, said Nick Campbell, an energy risk manager for Inspired Energy in Preston, England. “Cooler weather tomorrow expected to support heating demand has also helped push the product higher.”
Day-ahead gas added 2% at 12:53, its 10th day of gains. It has been steadily falling since March 2013, and is down more than 50%rom its peak then.
Gas bulls
European gas traders turned bullish for the first time since June in a Bloomberg survey conducted October 5, as the cold snap boosted demand and a potential strike in Norway, since averted, threatened to limit supplies further.
The UK also entered the heating season, which starts in October and ends in March, with less gas in long-term stockpiles than normal. An unexpected outage at the Rough gas storage facility, the largest in the country, to test the integrity of its wells in June caused it to start the winter with 1.3 billion cubic meters (46 billion cubic feet) of gas, a 54% reduction from last year.
A rebound in the price of oil and decline in the value of the pound has also lifted natural gas prices. Brent crude has gained 6% in October amid agreements among OPEC members to limit production.
About half of gas contracts in Europe are linked to the price of oil, with a six- to nine-month lag.
The pound has fallen 6.2% since the end of September. Contracts traded in sterling become relatively cheaper when the currency sinks, making UK gas more attractive to overseas buyers.
With temperatures forecast to rise in the UK, it’s unlikely the bullish run will last forever. National Grid also reported Britons will have plenty of fuel for winter, as any shortfall due to Rough’s closure will be covered by record production at neighboring Norwegian fields and more LNG imports.
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