Traders delight as UK gas goes wild on Centrica's Rough halt

Bloomberg's Kelly Gilblom looked to our Senior Market Analyst, Guillermo Baena Gomez, for his take on how large industrial and commercial users could benefit from the flux in the UK gas market in this morning's US based Washington Post

Bloomberg, Sep 07, 2016 10:12 am ET

This summer’s halt of the U.K.’s largest natural gas storage facility is roiling Europe’s natural gas markets -- and traders couldn’t be happier. Prices for same-day contracts in the region’s biggest market have swung nearly 20 percent up and down in the past week, sending 30-day volatility to its highest since 2013. That’s delighted traders stuck trying to make money in a market plagued by a supply glut that dragged prices lower for the past three years.

“It’s unbelievable,” Wayne Bryan, a gas trader at Alfa Energy Ltd., said by phone from the company’s Sarajevo office. “For traders it’s creating so many opportunities.”

The swings are all because of a halt in operations of Rough, Centrica Plc’s giant depleted gas field that accounts for as much as 70 percent of the nation’s gas storage capacity. As the summer is coming to an end, remaining facilities to keep gas are full, so when North Sea fields return from seasonal maintenance the jump in supply is overwhelming demand. Centrica declined to comment for this article.

Rough’s complete shutdown in June to inspect a deteriorating well has forced network operators and producers to go further afield to store or access fuel, unbalancing the U.K. system and triggering the price swings. When Rough is working, traders can inject the surplus into storage. Under the opposite conditions, they withdraw it. Without Rough, that equilibrium can go awry.

Take what happened on Friday

In the morning, gas that Norway normally sends to mainland Europe got diverted to Britain because of annual maintenance. Lacking storage to soak up the surplus, U.K. prices plunged to the lowest level since 2009. The cheap fuel was then exported out of the U.K. into Belgium at near-record rates as traders exploited the price difference with the mainland. By the afternoon, the contract had reversed its slump and closed up 16 percent in its biggest increase in three years.

“Trading opportunities like this have seldom come around in the last 18 months,” Sam Berry, a gas trader and account manager at British Independent Utilities in Lytham St Annes, England.

For traders, such madness in the market can be rewarding. It gives them the opportunity to buy low and sell high. When prices just move only in one direction, it’s harder to make money. The swings can also benefit industrial users if they are nimble in their purchasing strategies.

“Large industrial and commercial businesses with high consumption levels can really use this time to their advantage,” said Guillermo Baena Gomez, an energy trader and senior market analyst at Advantage Utilities Ltd. in London. They can “benefit from dips in the market and thus achieve a price usually better than they could had they fixed” contracts, he said.

Volatility doesn’t suit everyone, and customers with less flexible supply contracts will typically feel the pain of market gyrations. Those include chemical manufacturers that use natural gas as a feedstock, companies in the transportation industry and energy producers that employ the fuel to boost oil recovery.

Gas Is Having a Rough Time 9,000 Feet Under U.K.’s North Sea

Centrica will allow clients to withdraw gas from two-thirds of its Rough wells in November, while injections won’t restart until at least March.

“The extent of recent volatility in the hub prices is incredible,” said Elchin Mammadov, a utilities analyst at Bloomberg Intelligence. “Volatility tends to benefit savvy traders.”

(Updates with consumers hurt by volatility in 15th paragraph.)

©2016 Bloomberg L.P