If you are planning to spend your Christmas break trading crude oil and natural gas CFDs, you may be in the right place, at the right time. But if you if are holding Centrica shares, you could be in for a poor six months of it. We have been seeing a phenomenal series of disasters within the gas logisitics space over the past few days which will boost gas prices at a time when the winter weather is starting to bite.
Foremost among these is the temporary closure of a critical pipeline responsible for bringing in oil and gas from the North Sea, following detection of a hairline crack. On top of this, an explosion at the Austrian gas processing plant at Baumgarten, which is the central transhipment point for critical Russian gas entering Europe, is also likely to push natural gas prices higher. It has been enough for the Italian government to declare a state of emergency, as local gas prices there have more than doubled.
Gas CFDs could benefit from higher futures prices over Christmas period
Gas prices spiked as the market sought to digest the news. Cold weather in the UK is also going to be a contributory factor. But the shutdown of the Forties Pipeline System for repairs which could last well into January means that both the Elgin-Franklin and Britannia North Sea gas fields have been taken offline. These two gas fields between them produce some 20 million cu m/d (cubic meters per day) of natural gas, and with the extension of maintenance works at North Morecambe, UK output is down 27 million cu m/d.
Not receiving as much publicity, but still significant, was a power failure at the Troll field in the Norwegian sector, which has hit several gas fields that feed gas into the Kollsnes terminal. This in turn feeds into the Sleipner and Draupner hubs which provide gas to the UK and continental Europe.
At time of writing CFDs based on the January gas contract had jumped on overnight news, from 2.705 having spent yesterday bouncing off a resistance level of just under that. Early trading has taken gas CFDs to around 2.725, with a new resistance level of around 2.715 while the market digests the news.
Centrica shares face gas outage fall out
The Armchair Trader’s commodities team is not that far from Baumgarten this week, where we can report the weather is a balmy 10 degrees Celsius. From our perspective, it looks like gas and Brent crude futures could be in for an exciting time over the next few weeks.
Another possible casualty of the disruption will be Centrica. The UK gas giant saw 17% shaved off its share price in November following a profits warning. Earnings guidance was slashed with management telling the market that earnings per share would be 12.5p for 2017, well below the 15p that was the market consensus.
In the four months between the end of June and the end of October, Centrica lost 823,000 energy supply accounts in the UK. Admittedly, 650,000 came from a collective switch, white-label fixed price and prepayment tariffs, but that still leaves 150,000 customers walking out of the door in four months.
“You have to wonder why Centrica rushed out its plans to reform the energy market,” says Neil Wilson, Senior Market Analyst at ETX Capital. “Perhaps it’s seeing a larger number of account losses than planned.”
Centrica shares had been trading in the 160-170 range before November’s bad news. Since the end of last month they have been trying to stage a recovery, however the bad news in the gas markets has seen Centrica stock dropping from 145 and heading south towards 142.