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Bloomberg: U.K. Gas Retreats as Supplies Are Unaffected by Fire (Update2)

By Ben Farey and Alexander Kwiatkowski

Feb. 29 (Bloomberg) — U.K. natural gas prices retreated from near two-year highs after Royal Dutch Shell Plc said supplies were adequate after a fire yesterday at its Bacton gas terminal in England cut flows from the North Sea.

Natural gas for delivery a week ahead reached its highest price in almost two years today, following the blaze in a water- treatment plant at the terminal, which supplies 10 percent of the U.K.’s gas. Prices retreated from intra-day highs as shippers drew on storage and Shell said there was no adverse effect on U.K. supplies.

“There’s plenty of gas coming in from all the terminals around the country,” Stewart Larque, a spokesman for National Grid Plc, the U.K. gas-transportation network manager, said today by phone. “There’s plenty of gas in storage” as well, he said, providing a buffer of spare supplies.

Week-ahead gas climbed as much as 17 percent to 62 pence a therm, or the equivalent of $12.33 per million British thermal units, according to prices from brokerage ICAP Plc. The fuel was trading 6.7 percent higher at 56.50 pence a therm as of 10:06 a.m. in London.

“Traders taking gas in through Bacton will have to replace those flows,” Patrick Heather, an industry consultant and former head of gas trading at BG Group Plc, said by phone yesterday. “The southeast is where the demand is. Bacton is our physical link to the continent.”

Within-day gas climbed as much as 19 percent to 62 pence a therm at in intraday trade. It traded for 55.25 pence a therm, up 6.1 percent, at 9:47 a.m. in London.

Investigation Underway

Shell said an investigation is underway into the fire at the terminal in Norfolk, England, and it was too early to comment on the cause. The facility sustained “structural damage” from the blast, according to a recorded message from the local fire service yesterday.

“We have no date for the re-start of the terminal,” Shell said in an e-mailed statement today. “Gas supply to the U.K. is unaffected.” Shell has been in contact with the National Grid who confirmed there is “more than enough supply coming into the country from all the various sources,” according to the statement.

“National Grid are confident there will be no detrimental effect on security of supply,” Shell said. “Only the Shell terminal at the Bacton site is affected.”

Shell’s second terminal at the site, Bacton Seal, was also shut following the fire as a precaution, but was not damaged, Shell spokesman Jack Page said in a telephone interview.

Supply Draw

Gas shippers started to draw supplies of the fuel from liquefied natural gas stocks at the Glenmavis facility in Scotland today, the first time it’s been used since Feb. 20. Traders use gas in store to boost deliveries when demand and prices rise.

Rough, the U.K.’s biggest gas-storage facility, was 34 percent full as of Feb. 28, with more than 26 days of supply at maximum withdrawal rate in stock, according to National Grid data. Smaller storage sites are 60 percent full with 10.8 day’s supply, while LNG stocks are 67 percent full, the grid data show.

“Rough storage has picked up the flows a bit to make up for the shortfall,” Gary Papworth, an anlayst at Inenco Group Ltd. in Lancashire, England. Gas flows were already below maximum capacity at the terminal, he said, ands there’s capacity available through other pipes to compensate for the reduced flows. The only difficulty would be “if we have an extended winter,” he said.

Gas Prices

News of the blaze yesterday came after normal trading hours for most gas brokers, though it affected prices on the APX exchange, which is used by National Grid Plc, operator of the U.K.’s gas pipeline network, to buy and sell the fuel to balance daily demand. A therm is 100,000 British thermal units.

Dutch gas for delivery March 3 at the Title Transfer Facility rose 2.8 percent to 23.75 euros ($36.12) a megawatt-hour, according to Spectron Group Plc. That equals $10.59 a million British thermal units. Next-month gas gained 4.4 percent to a month-high of 23.65 euros. Dutch prices tend to follow British contracts because a pipeline links to two grids.

Several gas terminals are located at Bacton, including Bacton Shell, Bacton Seal, the Balgzand-Bacton Line that links the Netherlands and the U.K., and another link to Europe known as Interconnector (U.K.) Ltd.

No gas was flowing through either the Bacton Shell or Bacton Seal terminals, data from National Grid showed today. The Interconnector and BBL pipelines, which pump gas to other terminals at Bacton, were unaffected.

To contact the reporters on this story: Ben Farey in London at [email protected] Alexander Kwiatkowski in London at [email protected]

Last Updated: February 29, 2008 06:19 EST

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=auMZTwk6KipY

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