London (Platts)--18Mar2011/905 am EDT/1305 GMT

The full impact of the Japan crisis on the UK natural gas market may take "several weeks" to become clear, traders said Friday, after both prompt and forward contracts calmed following fears over possible LNG diversions away from Europe and toward Asia which had added a significant premium to prices since the week began.

"Ultimately any downside could be down to profit-taking due to the sharp increase this week. The likelihood is it will take several weeks to see the full extent of the impact on the global gas balance and potentially general movements will be over short time horizons," a trader said.

"We are seeing a softer close to the week. Summer 2011 and Winter 2011 are down 5% and 4% from its Wednesday closing price but ultimately still up 6% and 4% respectively from its last week Friday closing price," the trader added.

UK gas for delivery this summer was trading 0.30 pence a therm lower on the day at 63.40 p/th by midday London time Friday, while the Winter 2011 contract edged 0.20 p/th higher to 71.70 p/th.

This meant the market there remained in backwardation against the Winter 2012 price of 70.70 p/th, despite the spread between the two contracts narrowing considerably in the previous two sessions.

Meanwhile, front-month Brent crude oil also continued to have little impact on the UK curve after prices there rose by $1.10 a barrel to $116/b on the back of an overnight vote by the United Nations Security Council that approved a no-fly zone over Libya, while also agreeing to extend all necessary measures to protect Libyan civilians.

In line with forward movement, prices were also a little more stable on the prompt where amid some technical trading the supply system remained well balanced on the day. Gas for immediate delivery was changing hands 0.60 p/th lower at 64 p/th Friday lunchtime, while that for delivery Monday was just a tenth of a penny lower at 63.75 p/th.

"Forecast demand may potentially fall further as the within-day contract is offered at the premium to the Summer 2011 contract and therefore could result in reduced injections into storage," a trader said.

"This could see shippers sell the gas as within-day gas is currently trading at a premium to yesterday's day-ahead contract. Lower gas burn in power generation has also impacted gas system demand and is currently generating 6% less than coal," the trader added.

He said this could potentially mean system action will be supply side led, which given the premium of within-day contract to the front-month could see medium range storage begin to withdraw to make up the short fall, should Norwegian flows continue at slightly reduced levels.

Temperatures are also likely to weaken demand further heading into next week, with the latest Customweather forecast indicating temperatures in London will gradually increase from 3 degrees Celsius below the seasonal average of 4-12 degrees Celsius at present to normal levels through to next Wednesday.

National Grid data showed the system was balanced at 299 million cubic meters a day Friday, indicating demand was 26 million cu m/d or 8% below the seasonal normal of 325 million cu m/d as LNG flows offset any potential market impact caused by a slight reduction in Norwegian gas flows into the UK Friday.

Flows of natural gas through the Langeled pipeline were down by around 10 million cu m/d on Thursday's finish at 60 million cu m/d and St. Fergus Total flows were reduced by 6 million cu m/d to 20 million cu m/d. However, LNG contributed an additional 20 million cu m/d to the system, flowing at around 95 million cu m/d Friday lunchtime.

Flows from the South Hook terminal were up around 5 million cu m/d to 55 million cu m/d, while Dragon flows were up 5 million cu m/d to 20 million cu m/d and Isle of Grain flows increased by around 10 million cu m/d, with further deliveries of the fuel expected in the UK in coming weeks.

After National Grid confirmed the arrival of the Al Huwaila tanker at the Isle of Grain terminal Thursday, local port data showed the Al Mafyar is still expected to arrive Friday and the Mozah on Sunday, all at South Hook from Qatar. The LNG Imo is also due to arrive at the Dragon terminal from Nigeria on March 22.

Similar stories appear in European Gas Daily. See more information at http://bit.ly/EuropeanGasDaily