Initially, December saw the continuation of late November’s bullishness (upward price movement) as heavy undersupply due to low LNG (Liquefied Natural Gas) sendout and reduced imports from Norway via the Langeled pipeline. However, UK DA (Day-Ahead) contracts held a premium over European counterparts, encouraging strong BBL flows and a reduction in exports to Belgium offering relief from the bullishness. Further weight came from sharp rises in wind output and higher than normal temperatures, suppressing gas demand. The Hunterston B-7 reactor returned after conclusion of maintenance at the end of the first week, offering some relief to the power contracts. A strong Euro applied additional upwards pressure on contracts as it hit a five-week high against the pound. In the first few days, the benchmark Brent contract progressively strengthened as traders anticipated a possible production cut announcement from OPEC. However, after OPEC announced it would lift the production ceiling crude oil contracts saw sharp falls, breaking through the $40/bbl threshold.

The bullishness of the first week was short lived, as the unseasonably mild weather reduced domestic gas demand and an expected fall in Asian demand led traders to anticipate a pick-up in LNG tanker arrivals. Norwegian imports jumped up to 68 mcm from the Langeled line (close to technical capacity) until an unplanned outage at the key Troll gas field curtailed flows and a further outage at the Kollsnes facility the following week. Low exports to Belgium continued, easing supply during times of low demand leading to an oversupplied contributing to the downwards momentum. A strong euro to the pound offered some floor to the falls as the Bank of England provided no indication that there would be an interest rate rise before 2016.

A ramp down in industrial gas demand as Christmas approached and continued mild weather pushed contracts further into negative territory. This was further compounded by the crude oil market, which saw the benchmark Brent contract fall towards 11 year lows with concerns that global economic growth could be limited in 2016. Additional weight came from a stronger GB pound to Euro exchange rate, reducing the interest of Continental buyers. The benchmark coal contract acted as a floor for the power contracts as we saw gains despite an IEA warning that the fuel’s golden era is over as China’s economy slows and seeks to reduce coal’s share of their energy mix.

GLOSSARY

Bullish – an upwards movement in market prices.

Bearish – a downwards movement in market prices.

Brent Crude - Traded on the ICE and based upon North Sea Oil

BBL pipeline (Balgzand Bacton Line) - UK-Netherlands gas pipeline (from Balgzand, Netherlands, to Bacton, UK

DA (Day-Ahead) – Gas or power for delivery tomorrow.

NBP (National Balancing Point) – A notional point in the UK NTS used as a delivery point for gas rather than at the beach. For accounting and balancing purposes all gas is said to flow through this point.

LNG (Liquefied Natural Gas) – Gas is converted to a liquid state for ease of transport across the globe. Gas in this form typically comes from Qatar.

Langeled Pipeline - Pipeline bringing Norwegian gas into the UK at Easington. OPEC – Organisation of Petroleum Exporting Countries