Even the U.K.’s three LNG terminals and increasing global output are no guarantee of supply. Not only must it outbid traditional big LNG buyers in Japan and South Korea, stiff competition will emerge from France, Spain and Turkey if last year’s unusual cold spell and power shortages are repeated. Southern Europe was a top LNG destination in January when prices there surged 80 percent above Asian rates.
The threat of price jumps triggered by a cold snap is even more acute after Centrica Plc shut its North Sea Rough gas storage site, cutting off a quarter of the nation’s daily supply capacity that can be ready in hours. LNG can take weeks to arrive. On top of that, pipeline imports from countries including Norway and Russia, which meet more than half the U.K.’s winter use, may be stretched by demand from mainland Europe, according to UBS AG.
“We’ll see an interesting winter coming both from the LNG and pipeline gas perspective,” said Gyorgy Vargha, the chief executive officer of MET International, a Zug, Switzerland-based energy trader that entered the LNG market last year. The U.K. supply gap created by Rough’s closure will most likely be filled by pipeline gas rather than LNG if there’s extra demand for the super-chilled fuel from southern Europe and Turkey, he said.
In a bad winter, traders will have to do the math and decide whether to buy LNG cargoes in the short-term, or spot, market or source more Russian or Norwegian gas, said Melissa Stark, a managing director for energy at Accenture Plc. Both countries have said they can provide more.
For more on how Rough shutdown affects Britain’s supply, click here
Britain’s imports of LNG from Qatar dropped to record lows last winter. The world’s biggest LNG producer targeted new importers in Pakistan and Egypt, as well as meeting higher demand from South Korea and southern Europe, according to Bloomberg New Energy Finance.
The competition for LNG makes the fuel unreliable from a security of supply perspective, Keith Martin, the chief commercial officer at utility Uniper SE, said on a call with analysts Friday. Gas storage in Europe will play a bigger role in prolonged cold snaps, he said.
Plentiful LNG
The U.K. will have enough gas from a range of sources to meet winter demand, National Grid Plc said last month in its preliminary winter review. The network operator expects “plenty of LNG available” and left its cold-day forecast for the fuel unchanged. Last winter, LNG supplies were a third of the upper range expected by the grid operator.
Europe’s long-anticipated wave of LNG imports is unlikely to come next winter, said Vargha at MET, which has a gas portfolio of about 4 billion cubic meters, or about 50 cargoes. It traded 15 to 20 percent of this in LNG this year and aims to double that by the end of 2017.
Some cargoes could arrive from September through November and in the spring, “but in the first quarter it is all about Asian demand,” said Vargha, who is looking to broaden MET’s European focus to the Pacific next year.
Source: Bloomberg