6d • General discussion
Uk nat gas structured overview
1. The UK gas market at a glance
The UK has a liberalised and highly liquid gas market
It trades gas both physically (actual delivery) and financially (price risk management)
The UK market is one of the main gas price references in Europe
The central hub for UK gas trading is the NBP – National Balancing Point.
2. National Balancing Point (NBP)
NBP is a virtual trading hub, not a physical location.
Key features:
Represents gas anywhere in the UK transmission system
Trades in pence per therm or £/MWh
Used as a benchmark price for UK gas and some LNG contracts
NBP is similar in role to:
TTF (Netherlands – now Europe’s dominant gas benchmark)
Henry Hub (US)
3. Types of gas trading
A. Physical gas trading
Used by:
Utilities
Shippers
Power generators
Large industrial users
Products include:
Day-ahead
Within-day
Weekend
Month-ahead / seasonal
Purpose:
Secure supply
Meet customer demand
Balance daily positions
B. Financial gas trading
Used by:
Banks
Trading houses
Energy funds
Utilities hedging risk
Instruments:
Futures
Swaps
Options
Spread trades (NBP vs TTF, gas vs power)
Traded mainly on:
ICE Endex
OTC markets (brokered)
4. Balancing and the role of National Grid
The UK system must balance gas every day.
National Gas (formerly National Grid Gas) is the system operator
Shippers are responsible for balancing their own positions
If they fail, they face cash-out prices (penalties)
This creates:
High within-day trading activity
Volatility during supply shocks or demand spikes
5. Supply sources affecting UK gas prices
UK gas prices are driven by:
Domestic supply
UK Continental Shelf (declining long-term)
Imports
Norway (pipelines) – most important source
LNG (US, Qatar, others)
Interconnectors with Belgium (IUK) and Netherlands (BBL)
Demand drivers
Weather (especially winter)
Power generation (gas vs renewables)
Storage levels (UK has relatively low storage)
6. Relationship with European gas markets
UK gas prices are highly correlated with TTF
Gas flows both directions depending on price differentials
Traders actively arbitrage:
NBP vs TTF
UK vs global LNG prices (JKM)
Since 2021–2023, TTF has become the dominant European benchmark, but NBP remains crucial for UK-specific risk.
7. Volatility and risk
UK gas trading can be volatile due to:
Weather sensitivity
LNG cargo diversion
Infrastructure outages
Low storage buffers
Geopolitical shocks
Risk management is central:
Hedging using futures and options
Cross-commodity hedging (gas vs power, carbon)
8. Who trades UK gas?
Typical market participants:
Utilities (Centrica, EDF, E.ON)
Oil & gas majors (Shell, BP)
Trading houses (Vitol, Trafigura)
Banks and hedge funds
LNG portfolio players
9. Why UK gas trading matters
Sets prices for heating and electricity
Influences European gas flows
Affects LNG shipping decisions
Drives power prices due to gas-fired generation
If you want, I can go deeper into:
How to trade NBP vs TTF spreads
UK gas storage and its impact on prices
How gas trading links to UK power prices
A trader’s daily workflow in the UK gas market.
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Uk nat gas structured overview