UK wholesale natural gas prices are rising sharply this winter, as the country’s increased reliance on liquefied natural gas imports has left it exposed to rallying prices in Asia.
The price of natural gas in the UK is already a third higher than the level of a year ago, as LNG prices have risen to the highest in at least two years in Asia, where economies such as China are already close to full-speed after getting a handle on the coronavirus pandemic.
UK day-ahead gas prices traded between 40p and 48p a therm this week, compared with almost 30p last December.
The price increase illustrates how the UK’s growing reliance on natural gas imports, including a rising volume of LNG, has given it greater exposure to global trends in what was once a regional market for gas supplies.
The Asian surge threatens to increase costs both for households and businesses that rely on natural gas, while raising the prospect that the UK might not be able to access enough cargoes of LNG should a particularly cold snap hit in the coming months.
Niall Trimble at the Energy Contract Company, said the UK had increased its reliance on LNG for gas imports in the past two years, when oversupply in the global market meant cargoes were cheaply and readily available.
“But this will now prove a test of the UK’s strategy now that prices are rising and that’s having an impact across wholesale gas markets in the UK whether they’re domestic supplies, imported by pipeline or by ship,” Mr Trimble said.
“Buyers in the UK are now competing with Asia in a tighter market.”
Traders and analysts said LNG prices in Asia had been driven higher by several factors, including a tight shipping market for the seaborne fuel, unplanned outages at a number of projects, and colder than normal weather in China, Japan and South Korea.
Asia is the centre of the LNG trade, with China and Japan the top two importers globally, but in recent years prices have been relatively depressed as a glut of new supplies have hit the market with projects coming on stream in the US and Australia.
Asian spot prices for LNG cargoes rose above $10 per million British thermal units (mmbtu) this week, almost double the level they were in November and five times as high as they were over the summer, when the economic hit from the pandemic had slashed demand for fuel.
There is little concern in the short-term, with up to 11 LNG cargoes expected to arrive in the UK before the end of the year, according to ship-tracking data on Refinitiv Eikon, with the vessels largely coming from the US and Russia.
But there are notably less shipments coming from Qatar, typically the biggest supplier of LNG to the UK over the course of the year, with higher prices in Asia probably attracting their shipments over the winter months.
Analysts at Energy Aspects said they thought Asian prices might ease in the coming weeks as more supply came back online after shutdowns at LNG projects were resolved, and there was “a return to the seasonal norm for north-east Asian temperatures”.
However, prices in Asia are still expected to remain elevated for the next few weeks, with cargoes for delivery in February still higher than $10 per mmbtu.
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December 20, 2020 at 10:32PM
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UK gas prices surge on Asia LNG rally - Financial Times
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