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NEW YORK (Reuters) - Investment bank Barclays Capital (BARC.L) is in talks with Malaysia's Petronas to secure import rights at the Dragon liquefied natural gas terminal in Britain, sources told Reuters on Tuesday.
The move, which would allow Barcap to import cargoes of LNG to the underused terminal in South Wales, is part of the bank's wider strategy to expand into LNG trading as global production increases and the spot market grows.
Earlier this year, Barcap secured import rights at the U.S. Cameron LNG terminal in Louisiana in a deal with Italian utility ENI (ENI.MI).
The talks, aimed at giving Barcap a gas trading tool on both side of the Atlantic, could result in a deal by the end of January, one source said.
Agreeing on a deal could also help increase volumes to Dragon in the future, analysts said. Malaysian LNG producer Petronas PETR.UL, which owns half the import capacity at the terminal, sent only sporadic volumes there this year as higher gas prices in Asia kept most of its cargoes in the Pacific Basin.
"Petronas is seeing better prices and lower costs in the Pacific Basin, which I guess is why they haven't landed too many cargoes in the U.K.," said Ian Trotter, gas analyst at Point Carbon.
Dragon has used only 1.7 billion cubic meters of its 6 bcm yearly capacity in 2010, according to Point Carbon data. Most of this was brought in by BG Group BG.L, which owns the other 50 percent of capacity at the terminal.
Despite Dragon not importing at full capacity, the United Kingdom has received record levels of LNG this year, becoming Europe's second-largest importer after Spain as LNG production in the Middle East rose and importers looked to diversify supply away from more expensive, oil-linked pipeline gas.
Barcap opened its LNG Services Division in December, initially concentrating on marketing LNG imported to the U.S. Northeast Gateway terminal offshore Boston under a deal with LNG shipper Excelerate Energy.
Barcap is one of a number of banks and trading houses entering LNG trade over the past 18 months as the spot market grows, with Citi Group (C.N), JP Morgan (JPM.N) and trading houses Mercuria, Gunvor and Golar GOLAR.OL all opening LNG trading desks.
In August, Barcap signed a deal to gain import rights to the U.S. Cameron LNG terminal in Louisiana. This deal marked Barcap's entry into trading physical LNG cargoes.
Barcap said in August it intended to complement its U.S. import capacity with European capacity, giving it import options on both sides of the Atlantic.
The spread between U.S. and U.K. gas prices tends to determine the flow of LNG in the Atlantic Basin, as shippers look at which market will fetch the highest returns. Having an outlet for cargoes in both Europe and the U.S. gives traders more leverage.
"Barclays seems to be looking at the trans-Atlantic spread, and Europe is definitely the best destination for Atlantic basin gas," Trotter said.
U.K. gas prices have soared above U.S. prices in 2010, with the spread widening to its furthest level this year in recent days as temperatures fell across Europe. <LNG/>
Petronas owns a 30 percent share in Dragon LNG, with BG Group owning 50 percent and terminal developer 4 Gas 20 percent.
Additional reporting by Kwok Wan in London; Editing by John Picinich and Lisa Shumaker