National Balancing Point (UK)
Encyclopedia
The National Balancing Point, commonly referred to as the NBP, is a virtual trading location
for the sale and purchase and exchange of UK natural gas
. It is the pricing and delivery point for the ICE (IntercontinentalExchange
) natural gas futures contract
It is the most liquid
gas trading point in Europe and is a major influence on the price that domestic consumers pay for their gas at home. Gas at the NBP trades in pence per therm
.
It is similar in concept to the Henry Hub
in the United States - but differs in that it is not an actual physical location.
Unlike continental European trading hubs such as Zeebrugge and TTF, trades made at the NBP are not required to be balanced, and there is no fixed penalty for being out of balance. Instead, shippers out of balance at the end of the day are automatically balanced through the 'cash-out' procedure whereby the shipper is automatically made to buy or sell the required quantity of gas to balance their position at the marginal system buy or sell price for that day. This cash out process is not considered to be a penalty in the same way as those imposed on shippers in continental markets, because the cash-out prices are often very close to the spot price. As a result of this daily market liquidity, the UK's NBP is frequently used to balance a shipper's position on the continent by way of the Bacton - Zeebrugge interconnector
.
National Grid plc
is the network operator in Great Britain. They are responsible for the physical transportation of gas, as shippers are required only to nominate quantities entering and/or exiting the network, and not the transport route which the gas should physically follow. The National Grid has the power to bring the system into balance, if shippers as a whole are out of balance. This is achieved by trading on the OCM (see below) and passing the cost onto gas shippers through the cash-out system. When the system is short of gas it tends to force prices at the NBP up. When the system is long gas, the price is forced down. This can provide an advantageous trading environment to a shipper which has flexible flow contracts.
Trades at the NBP are made via the OCM trading system, an anonymous trading service managed by APX-ENDEX
to which offers or requests for gas at a nominated price can be posted. The minimum amount of gas that may be traded on the OCM is 4,000 therms, so if a shipper's position is long or short by a volume less than 4,000 therms they may be forced simply to leave their balance to cash out.
Virtual trading point
Articles on Virtual trading point include:* National Balancing Point * Title Transfer Facility * Zeebrugge Hub...
for the sale and purchase and exchange of UK natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
. It is the pricing and delivery point for the ICE (IntercontinentalExchange
IntercontinentalExchange
IntercontinentalExchange, Inc., known as ICE, is an American financial company that operates Internet-based marketplaces which trade futures and over-the-counter energy and commodity contracts as well as derivative financial products...
) natural gas futures contract
Futures contract
In finance, a futures contract is a standardized contract between two parties to exchange a specified asset of standardized quantity and quality for a price agreed today with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange...
It is the most liquid
Market liquidity
In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value...
gas trading point in Europe and is a major influence on the price that domestic consumers pay for their gas at home. Gas at the NBP trades in pence per therm
Therm
The therm is a non-SI unit of heat energy equal to 100,000 British thermal units . It is approximately the energy equivalent of burning 100 cubic feet of natural gas....
.
It is similar in concept to the Henry Hub
Henry Hub
]The Henry hub is the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange . It is a point on the natural gas pipeline system in Erath, Louisiana...
in the United States - but differs in that it is not an actual physical location.
Unlike continental European trading hubs such as Zeebrugge and TTF, trades made at the NBP are not required to be balanced, and there is no fixed penalty for being out of balance. Instead, shippers out of balance at the end of the day are automatically balanced through the 'cash-out' procedure whereby the shipper is automatically made to buy or sell the required quantity of gas to balance their position at the marginal system buy or sell price for that day. This cash out process is not considered to be a penalty in the same way as those imposed on shippers in continental markets, because the cash-out prices are often very close to the spot price. As a result of this daily market liquidity, the UK's NBP is frequently used to balance a shipper's position on the continent by way of the Bacton - Zeebrugge interconnector
Interconnector
The Interconnector is a natural gas pipeline between the United Kingdom and continental Europe. It crosses the North Sea between Bacton Gas Terminal in England and Zeebrugge in Belgium. Construction of the pipeline was completed in 1998. It provides bi-directional transport capability to...
.
National Grid plc
National Grid plc
National Grid plc is a multinational electricity and gas utility company headquartered in London, United Kingdom. Its principal activities are in the United Kingdom and northeastern United States and it is one of the largest investor-owned energy companies in the world.National Grid is listed on...
is the network operator in Great Britain. They are responsible for the physical transportation of gas, as shippers are required only to nominate quantities entering and/or exiting the network, and not the transport route which the gas should physically follow. The National Grid has the power to bring the system into balance, if shippers as a whole are out of balance. This is achieved by trading on the OCM (see below) and passing the cost onto gas shippers through the cash-out system. When the system is short of gas it tends to force prices at the NBP up. When the system is long gas, the price is forced down. This can provide an advantageous trading environment to a shipper which has flexible flow contracts.
Trades at the NBP are made via the OCM trading system, an anonymous trading service managed by APX-ENDEX
APX-ENDEX
APX-ENDEX is an Anglo-Dutch energy exchange operating the spot and derivatives markets for electricity and natural gas in the Netherlands, the United Kingdom, and Belgium. Established in 1999, APX-ENDEX provides exchange trading, central clearing and settlement, and data distribution services as...
to which offers or requests for gas at a nominated price can be posted. The minimum amount of gas that may be traded on the OCM is 4,000 therms, so if a shipper's position is long or short by a volume less than 4,000 therms they may be forced simply to leave their balance to cash out.