February 3, 2012 / 8:03 AM / 8 years ago

Analysis - UK gas curve signals U.S. LNG imports

LONDON (Reuters) - Forecasts that cheap gas from the United States will one day reshape the global natural gas market are increasingly commonplace. Now the first hard evidence is beginning to emerge.

The tanker Hyundai Ecopia leaves the exporting terminal in Balhaf carrying Yemen's first liquefied natural gas (LNG) shipment November 7, 2009. REUTERS/Khaled Abdullah

Forward prices on the UK gas market suggest that traders are already pricing in expectations of a flow of gas from the United States to Europe.

The market appears to be preparing to receive liquefied U.S. natural gas (LNG) shipments three years from now, even though companies have not yet broken ground on export plants in the Gulf of Mexico.

“Some of the forward prices in the UK may reflect the possibility of U.S. exports to the UK ... if you take the U.S. futures curve and add on liquefaction and shipping costs,” BP’s Michael Smith, lead adviser in trading analytics, told Reuters.

UK curve gas for 2015 has traded at a sustained level of about $9.40/MMBtu, which is close to the cost of producing, liquefying and shipping U.S. gas to Britain from a proposed export plant in Louisiana, Reuters research shows.

It suggests that U.S. export economics may be setting a floor price for later-dated UK gas contracts.

The onset of freezing weather across Europe this week has pushed the contract to higher levels.

In the past five years, surging output from U.S. shale deposits has transformed global gas markets and revived the energy fortunes of the world’s biggest economy, slashing foreign imports to virtually zero and raising hopes of exports from 2015.

American imports could reduce Britain’s growing dependence on energy supplies from the Middle East, shielding consumers from price spikes caused by political shocks in the region and enhancing its energy security.

Imports from top world LNG producer Qatar increased to cover over 52 percent of UK consumption in the first nine months of 2011, up from 11 percent in 2009 as a whole, government data show. Between January and November last year Qatar supplied about 85 percent of the UK’s LNG.


The prospect of trans-Atlantic LNG trade took a step forward in 2010 with the first U.S.-UK delivery in more than half a century, made possible after North American prices slumped to what were record lows due to growing supplies.

Centrica, Britain’s biggest utility, received the inaugural cargo in November 2010 as well as several more in 2011.

Those cargoes were initially destined for the U.S. market, which by then was oversupplied, and then re-exported to Britain.

Houston-based energy company Cheniere wants to convert its Sabine Pass LNG import terminal into an export plant and expects building work to start in April.

The emergence of LNG trade between the United States and UK would mark the latest twist in the transformation of global energy markets brought about by the advent of U.S. shale gas production.

Booming supply of gas has upended industry forecasts that the United States would remain highly import-dependent and has left its suppliers in the lurch.

Qatar may have been a victim of bad timing after losing the United States as its main export market for LNG, but its decision to plough those volumes into Europe has snatched market share from Russia.

While Britain may attract some U.S. shipments, booming demand in Asia is likely to set the tone of global trade as prices there maintain stiff premiums over other markets.

BG Group, which owns import capacity in the UK, still expects to ship more U.S. gas to Asia than to Britain.

Cheniere, which has already sold most of the 18 million tonnes per annum (mtpa) in liquefaction capacity being developed at its Sabine Pass terminal, plans to keep the remaining 2 mtpa for its own portfolio.

Reporting by Oleg Vukmanovic, editing by Jane Baird

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