British gas prices are likely to become more volatile and prone to spikes over the next few years after the UK has moved from self sufficiency to increasing dependence on imports of liquefied natural gas from Qatar.
The latest UK government data show Qatari LNG imports were equivalent to 52% of the gas consumed over the first 9 months of 2011 up from 11% for 2009 as a whole.
Qatar also accounted for 85% of UK LNG supplies between January and November last year with Nigeria a weak second at just 5%. Britain’s gas market is exposed to diversions of Qatari ships to countries that pay more to shipping restrictions or unplanned outages on production facilities.
One UK gas trader at a utility said that if Qatari LNG supply to Britain was cut off, UK gas prices would spike to oil indexed levels to attract imports and possibly even higher to attract LNG from elsewhere. An event considered routine in other markets the news leak last summer of Qatar’s LNG autumn maintenance schedule for its LNG trains had the power to push UK winter gas prices up 3% in a day.
British gas prices also soared in March last year when Japan, also a big LNG importer was hit with the Fukushima nuclear crisis and started replacing nuclear capacity with additional gas imports.
By December, Japan’s imports from Qatar were double year ago levels. The potential for a sustained increase in Japan’s need for more gas could divert LNG shipments destined for Europe and push up British gas prices again later this year.
A European gas trader at a UK trading house said that “In my view the UK gas market has not priced that risk in which is very apparent from the winter 2012 gas price onwards. UK gas for winter 2012 is currently trading at 68.25 pence per them which is higher than the front month price but around 11% below levels in March following Fukushima. Those winter prices could rise again as Japan competes for more supply.
The European gas trader said that it depends on the Japanese nukes, and if these are not back in large numbers by winter 2012, we (Britain) may well need discretionary Russian volumes as LNG flows will likely be even less than this winter.
Mr Paul Akass European gas trader at Dutch utility Essent said that “Qatar’s proximity to less stable nations and its reliance on delivering cargoes via the Strait of Hormuz and Suez Canal are of particular concern when considering the recent tensions with Iran. My guess is if real disruptions occurred, the initial reaction would be prices rising to all-time highs.”
The British government has acknowledged that Britain receives a lot of its gas from Qatar and that a potential closure of the Strait of Hormuz would threaten economic growth. Such an event would have much less impact on other European countries such as Germany, which receive most of their gas supplies from Russia via pipeline. Over the past two years, Qatar has proved a reliable trading partner and the UK has become a vital market for Qatar to maintain its ranking as the world’s largest LNG exporter.
The UK gas trader said that “I think Qatar wants to have a solid relationship with the UK to hold its position as the number one LNG supplier. However, I think any swing gas would go elsewhere unless we are willing to pay for it.”
(Sourced from Reuters)
