Monday, 23 August 2010

UK and LNG Gas Imports

Britain has a record amount of liquefied natural gas (LNG) stocks after a flurry of deliveries in early August, but the re-routing of a Nigerian tanker from Britain to Brazil this week may signal a drop in cargoes over coming weeks.

Britain's LNG storage has been rapidly filled by tankers coming from producing countries such as Trinidad and Nigeria in response to a huge surge in UK gas prices in the second quarter.

The energy content of the super-cooled gas held in Britain's LNG storage tanks has risen sharply in August, hitting an unprecedented level of 9,261 gigawatt hours (GWh) on Thursday.

But the resulting slide in UK commercial gas prices since late July is likely to deter many more spot deliveries to Britain, and one Nigerian LNG shipper that had planned to deliver to Britain has re-routed to Brazil.

"LNG storage is good, but the marginal profit on LNG spot cargoes to the UK has decreased in the recent weeks," said Mark Daubney, a trader at EnergyQuote JHA, pointing to the end of Britain's summer spell as one of the world's most attractive markets for LNG.

"I think the 'things to come' bit is more a case of cargoes not showing up in the UK and showing up elsewhere, rather than U-turns in the middle of the ocean," said a gas analyst with a utility.

Britain has relatively little gas storage capacity compared with other European countries that rely more heavily on pipelines from external suppliers such as Russia. Instead it has opted for increased reliance on LNG tanker deliveries at times of peak demand.

The increased reliance on LNG -- effectively using the world's tankers as storage -- has made wholesale British gas prices highly sensitive to LNG supply and challenged the profitability of traditional storage sites.

Although LNG tanks at UK import terminals have never been more full and their capacity has grown enormously in the last year with the opening of the South Hook and Dragon terminals, Britain's long-range stock levels, which make up most of the total, are almost 6 percent lower than a year ago.

Held mainly in the Rough storage facility under the North Sea, long-range stocks were relied upon so heavily in the unusually cold start to the year that they bottomed out around at 3,300 gigawatt hours (GWh) in March 2010.

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