European buyers warned of LNG shortage

12 March 2012

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12 March 2012 | Angeline Albert

Falling domestic production and growing demand from Asia could mean the UK fails to receive imports of Liquified Natural Gas (LNG) next winter.

In its weekly Global Research report, Bank of America Merrill Lynch warned European gas buyers are being “squeezed out” of the LNG market, partly due to demand from Asian countries, including Japan, which will translate into higher gas prices next winter.

“Indigenous European production is decliningrapidly, raising the need for marginal supply sources such as LNG,” it said. “With Asian demand surging again, UK and European gas prices will have to increase to stem the ongoing diversion of LNG cargoes to Asia.”

It argued this marginal source of gas supply for Europe is contracting. “In fact, it is not implausible that UK LNG imports fall to zero by the end of 2012, especially if none of Japan's nuclear power plants are re-started this year,” the report said.

The bank predicted in the UK that winter 2012/13 gas prices will rise towards 90 pence per therm because of reduced LNG flows and higher oil prices. The current day ahead price is 59.7 pence per therm.

In response, Eddie Proffitt, gas group chairman at the Major Energy Users' Council (MEUC) – whose members include local authorities, central government and major retailers – questioned the banks’ prediction.

“Yes, Japan is buying more LNG. [But] this is not all that is happening. The Americans are talking about liquefying their shale gas, which is 16 pence  per therm. This could reduce prices,” he said. “We are not forecasting 90 pence per therm by next winter. You can buy gas for winter 2012/13 for 73.5 pence per therm. Most buyers wouldn’t buy now because 73.5 per therm is still expensive. They will probably purchase a month ahead because it is likely to be cheaper then.”

The MEUC is holding a number of free gas supply roadshows to discuss the future of gas supplies this year and in the near future.

 

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