UK front-month gas prices surge to premium over TTF on demand and LNG expectations

Natural gas prices for the UK NBP month-ahead contract have climbed to a robust premium versus Europe’s benchmark, the Dutch TTF hub, as market participants eye higher temperature-related winter demand and a need to secure LNG cargoes in a competitive market.

Platts, part of S&P Global Commodity Insights, assessed the UK NBP November contract at Eur39.32/MWh (or 96.44 pence/therm) on Oct. 9, while the Dutch TTF November contract was assessed at Eur38.59/MWh on the same date.

This left the NBP month-ahead at a premium of 73 Euro cent/MWh to its counterpart on the TTF, this down only slightly from a near 11-month high of 91.5 Euro cent/MWh on Oct. 4.

Comparatively, around the start of the last winter season, Platts had assessed the NBP month-ahead at an average discount of 75 Euro cent/MWh to the equivalent TTF contract Oct. 1-9.

Market participants pointed to an expected uptick in demand this November alongside a requirement for additional LNG volumes as key drivers for this uptick in NBP prices relative to the continent.

“For the NBP, the delivery month itself means more,” one UK-based trading analyst said. “The big change is because the month-ahead moved from October (still relatively low demand) to November (strong pick up expected on proper winter, so more LNG needed to balance)… I think the November NBP-TTF might come down if we see a lot of LNG or a mild weather forecast.”

Combined UK gas consumption over Oct. 1-8 has so far averaged 133 million cu m/d, versus 101 million cu m/d over the same period last year, and well below the 209 million cu m/d recorded over November 2023, data from Commodity Insights showed.

“LNG and demand are the main cause,” a European gas trading analyst said, also pointing to storage injections picking up given the contango between the NBP day-ahead and month-ahead contracts.

"It's always pushed up in case of lower seaborne supply, or higher consumption, to motivate flows from the continent to be hedged,” a Netherlands-based trader agreed.

Indeed, Commodity Insights analyst Elizabeth Kunle highlighted a tighter balance in the UK driven by high winter heating demand alongside low LNG arrivals into Europe, with these in any case favouring Northwest European and Italian terminals over the UK.

Looking ahead, she added that “the premium may encourage the UK to import from continental northwest Europe in November… and increase LNG supplies to meet heating demand. This could be a short lived trend, with NCS supply quite robust this year, we forecast net exports of 7 mcm/d from the UK to CNWE in November.”

Norwegian exports to the UK have averaged 60 million cu m/d over Oct. 1-8, which is 39% higher than the 43 million cu m/d recorded a year earlier over the same period, data from Commodity Insights revealed. Over November 2023, those exports averaged 86 million cu m/d.

On the demand side, Great Britain this winter is projected to remain stable, aligning with weather-adjusted levels from the previous winter at approximately 39 Bcm, according to National Gas Transmission (NGT) on Oct. 8.

Competitive LNG market

The strength in natural gas prices in the UK has also come at a time where Northwest European LNG players are bidding higher to remain competitive in the global arena.

Platts assessed the DES Northwest European marker for November at $12.204/MMBtu on Oct. 9, or an 18.5 cents/MMBtu discount versus the Dutch TTF gas hub price.

The NWE-TTF spread was much narrower than the 86.7 cents/MMBtu differential seen this time last year.

Traders are seeing increasing buyers' price to attract flows from other competitive demand hubs such as Asia, Egypt and Brazil. The strength has helped to increase LNG flows into the continent.

LNG imports into the United Kingdom landed at 500,000 metric tons, or seven cargoes, in September to be at the strongest levels seen since February, Commodity Insights data showed.

This was also above the 420,000 t, or six cargoes, imported in September 2023.

Imports in October stood at 110,000 t, or one cargo, as of Oct. 10.

According to Commodity Insights data, the UK is expected to import two more cargoes this month; one cargo of 70,000 t on Oct. 15 from the US, followed by another cargo of equal volumes from Peru on Oct. 27.

The Oct. 15 cargo is being carried by Vivit Arabia LNG vessel, which was earlier heading to Bangladesh, before being rerouted to the UK, S&P Global Commodities at Sea data showed.

The UK is having to compete in the global market for cargoes. Although LNG supply into Europe has improved, traders are seeing sellers with the shipping length and flexibility optimizing their volumes and taking them to the most competitive demand hubs.

While the market expects demand to be weaker in October versus September, buying activity was being eyed in the UK for November volumes with expectations that domestic gas and LNG prices will strengthen to pull in the necessary volumes over this winter, with November and December being heard as key months for cargo imports.

“The UK is expected to remain a steady importer of LNG through the long term,” analysts at Commodity Insights said. “Its ample regasification capacity, proximity to other European markets, and large liquid gas hub trade create a variety of reasons for why LNG demand can remain supported in any given year.”