UK gas prices retreat as Asia lures Europe’s LNG

British prompt gas prices fell on Monday as output from liquefied natural gas (LNG) terminals jumped and revised weather forecasts sapped demand, countering the impact of less frequent seaborne gas imports as Asia snatched more of Europe’s share.

“With a resurgent Asia, it looks as if the UK, which is facing poor growth prospects, will either have to pay up or see increasingly more LNG diverted to Japan, for example,” a trader with a major UK utility said.

Qatar’s policy of sending gas tankers to higher-paying markets in Asia has heightened the risk of gas shortages at Europe’s main hubs, which are more dependent than ever on LNG, traders and analysts say.

Changing supply patterns have already contributed to several, largely short-lived, price rallies in the UK gas market.

“But pipeline supplies have filled the gap left by LNG diversions, so it doesn’t look as if the UK is in any hurry to compete with Asia for supplies,” the trader said.

In a note published on Monday, Deutsche Bank analysts argued that the trend of diminishing European supplies will “intensify rather than recede through 2013.”

It argues that Japan will resort to importing more liquefied gas as it struggles to relaunch its nuclear industry, crippled by last year’s earthquake. That trend will see even less LNG coming to Europe, it said.

“In our view, the strength in prices for prompt delivery is evidence of support due to a supply contraction from marginal sources,” the bank said.

Gas for Tuesday delivery turned lower on Monday due to an amply supplied transmission network and expectations of lower demand through the week as forecasters predict warmer-than-expected temperatures.

Britons largely burn gas to heat their homes. The contract fell 0.75 pence to 57.75 pence per therm on lower gas demand.

Norway supplied nearly a third of UK demand on Monday. Offshore production accounted for much of the rest, excluding LNG terminals and storage facilities.

The surge in terminal output was led by the South Hook facility in Milford Haven, Wales, which pumped more gas to clear space in storage after the arrival of a Qatari LNG tanker over the weekend and another expected on Tuesday.

A halt in flows from Centrica’s South Morecambe gas field dented UK supply somewhat. Flows from Barrow South, a beach terminal the routes supplies from South Morecambe, dropped to zero from 6 million cubic meters/day at 1030 GMT.

The gas network was slightly undersupplied at 1145 GMT.

Further forward, the benchmark summer 2012 gas contract slipped more than half a penny to 57.65 pence as rising supply confidence depressed crude oil prices.

Later-dated gas contracts track crude oil price movements as a proxy for future economic growth and fuel demand.

Oil prices fell as China lowered economic growth prospects and Iraq boosted global oil supply at a time when energy markets weigh the impact of Iranian sanctions.

Forecasters see temperatures climbing back into double-digit territory towards the end of the week, reaching highs of about 13 degrees Celsius.

In the power market, day-ahead baseload traded at 46.45 pounds per megawatt hour. The UK exported electricity to the Netherlands and France, tightening supplies to the domestic market.

Wind power output declined to 3.1 percent of overall electrcity production, while gas-fired generation rose to nearly 29 percent and nuclear contributed a further 15 percent.

Coal provided the biggest share of UK electricity supply, at just over 47 percent, data from National Grid showed.

Reuters