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Our market view - week 41

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Gas prices jump on large uncertainty in supply as seasonal gas demand is rising


UK gas prices continue to rise, but not due to strong demand. Day-ahead prices for the first week in October averaged 61 p/th, which is 28% higher than in the same week last year. At the same time UK gas demand continues to weaken, with last week’s average demand nearly 13% down year-on-year. Still, we are at the time of the initial burst in seasonal gas demand. European gas demand more than doubles between September and December.


A succession of supply problems and production woes is pushing gas prices higher. Maintenance issues affecting Norwegian supplies are still in focus. Restart of the Kollsnes processing plant after maintenance has been postponed several times. The facility is expected to return today, but fears remain of a further delay which would provide support for prompt prices.

Also, an absence of LNG vessels heading for Europe is stoking supply concerns and supporting prices.

The second string of the Nord Stream pipeline will start flowing today, bringing the total capacity to 55 bcm per year. Added supply from Russia may relax the supply picture, but it is still unclear how much additional volume that will enter the spot market. Gazprom has said the second string is likely to see new gas flow to Europe, while flows in the first string that was commissioned November last year were mostly volumes from existing long-term oil-indexed contracts. Additional volumes could put pressure on German gas prices. As Nord Stream will add another major supply source to the Gaspool area, we could see Gaspool hub prices dropping more consistently below NCG prices, creating a larger price differential between the two German market zones.