It has been relatively smooth sailing for global energy markets in 2017, with supply disruptions at a historical low, but that might change in 2018, said British bank Barclays in its latest energy report.
The discovery of a crack in an onshore portion of the Forties Pipeline System (FPS) disrupts over 400 kb/d of UK oil production and removes one of four streams that serve as the physical benchmark for ICE Brent futures. If the high sulphide content of Buzzard crude and the cold weather contributed to the crack, repairs might take longer than just a ‘couple’ weeks as INEOS anticipates.
European gas markets have seen increased volatility this week on the back of the FPS shutdown, an incident at the Baumgarten gas hub in Austria, and the onset of colder-than-normal temperatures across Northwest Europe. These events have resulted in UK spot NBP prices rallying to as high as $9.70/MMBtu, the highest level since 2013.
NBP likely moves lower from here as issues are dealt with; however, UK vulnerabilities are not likely to go away, the report said.
“We anticipate prices will move lower from here as the supply situation stabilizes and temperatures potentially moderate. However, these recent events show the UK gas vulnerabilities following the decommissioning of its largest storage facility, Rough,” Barclays said in the report.
A bullish UK gas story and a bearish streak for US Henry Hub prices have resulted in the UK-US spread reaching $6/MMBtu, the highest level since 2013. “We do not see this spread as sustainable, and continue to forecast a 2018 UK-US gas spread of $2.25/MMBtu,” the report said.