UK winter gas prices and supply

Thomson Reuters Point Carbon has released an ‘Energy Insight’ report outlining expectations for UK gas prices and supply this winter.

Last year, less liquefied natural gas (LNG) was supplied to the UK over the winter compared to the previous three years. As the cold winter weather continued into the spring of 2013, energy supplies hit critical levels and the price of UK gas rocketed.

UK imports

However, spring LNG supplies to the UK are expected to arrive earlier this winter, thanks to the potential reopening of a number of nuclear reactors in Japan. Thomson Reuters Point Carbon analysed the data to investigate what this means for UK gas prices this winter. The report revealed the following:

• Asian gas prices have considerably increased over the last two years, driven largely by increased Japanese LNG imports to fuel the country’s power plants.
• During the winter of 2012, increasing demand from China, South Korea and Latin America, combined with supply problems in Nigeria, Algeria, Norway and Egypt, pushed Asian spot prices up to a near record high of US$ 20 per million Btu. The corresponding British gas price at the same time was US$ 10.65 per million Btu.
• Data shows that cargo arrivals to the UK generally fall when Asian LNG prices rise, and volumes recover when prices drop. This year, cargo arrivals to the UK from Qatar increased in April, corresponding with a fall in Asian spot prices.
• At present, the supply side for winter this year looks slightly more comfortable. Demand from Latin America appears to have eased slightly.
• Although demand from Asia will remain high, Asian spot prices could retreat faster and stronger if the expected restart of Japanese nuclear reactors coincides with the arrival of milder spring weather.
• Qatar LNG cargoes could arrive earlier in the UK thanks to low Asian spot prices. This would result in relief to the UK supply and demand balance, and hopefully will avoid a similar extreme price peak as witnessed last winter.

Supply and demand balance

Anne Katrin Brevik, analyst at Thomson Reuters Point Carbon, commented: “Last winter, the UK’s reliance on gas imports to meet its gas demands resulted in low supplies and high prices, as the cold weather dragged on into spring. However, if we see the first string of nuclear reactors in Japan pass their safety inspections and return to service on time, then we’re likely to see an earlier retreat of Asian spot prices and earlier arrivals of LNG cargoes into the UK next spring. This would alleviate the critically-tight gas supply and demand balance that occurs towards the end of the UK winter."

Conclusion

Demand for LNG is dominated by Asia (accounting for 70% of imports in 2012) and prices for Asian spot LNG generally increase when demand from northeastern Asian countries peaks during the winter. Latin America and the UK are growing increasingly reliant on imports of LNG as their domestic production levels decline. The UK imports most of its LNG from Qatar, which remains the biggest exporter, accounting for approximately a third of global exports.

Adapted from press release by Katie Woodward

Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/21112013/uk_winter_gas_prices/