Annex 1
LNG
The US situation (source: www.eia.doe.gov)
Concerns have explicitly highlighted the possibility
that LNG shipments would be diverted from Grain to the US as a
result of the current very high US gas prices. Whilst it is true
that the differentials between US and GB gas prices for Q4 2005
are sufficient, in principle, to lead to cargo diversions, there
are a number of practical reasons why these may not materialise.
First, of the five LNG import facilities, the terminal with the
greatest spare capacity is Lake Charles but the shipping route
to this terminal is currently closed due to storm damage and maintenance
at another terminal (Cover Point) is due to continue limiting
throughput until the end of November 2005. Second, there are restrictions
on the LNG that can be imported via the different US terminals
due to gas quality standards—for example, Nigerian LNG cannot
be processed at the Lake Charles facility because it has too high
an energy content. Third, the extent that the LNG is contracted
on a long-term firm basis to end users makes it difficult and
costly to make diversions on a spot basis. Fourth, one reason
that US gas prices are high is that a considerable percentage
of the US gas infrastructure remains off-line following the storms,
as is clearly shown in the figure above, which is taken from the
US Department of Energy Short-term Energy Outlook. By December,
over half of the gas infrastructure that is currently shut in
should be back on-line and US gas prices should start returning
to more normal levels. There is already some evidence that the
market is factoring this into prices since US prices for November
2005 have fallen back by around 7% from their highest levels.
An alternative explanation is that the sharp increase in gas prices
is dampening gas demand—for example, a survey of 25 industrial
end users showed that 50% were intending to reduce their gas consumption.
Wholesale price developments
Forward prices for this winter increased steadily
from the beginning of February this year until early July but
since then they have been declining, although at the end of September
they were between 15% and 30% higher than they were in early February.
However, the actual prices that are seen on
the day can be very different from the forward prices traded for
that period. For example, the average price for a forward contract
for Q1 2005 in the first half of October 2004 was 60.7 p/th but
the average outturn price for that period was only 34.9 p/th.
This is a somewhat extreme example but it illustrates an important
point, namely that the price at which you can buy gas in advance
of the day will almost certainly be different from the price at
which you can buy gas on the day. Any number of factors can affect
the relationship between the forward price and the outturn price
including market sentiment, participants' trading strategies,
weather and supply developments.
The table below demonstrates that forward prices
in GB remain higher than those in the continental European markets
to which we are closest (Belgium and the Netherlands). However,
the Zeebrugge and TTF prices should be treated with some caution
as most continental European gas is purchased under long term
oil-linked contracts and hence does not feed into the prices shown.
Over recent days, the NBP premium over the TTF prices has increased
significantly whereas its premium over Zeebrugge prices has remained
more constant.
| | |
| | | |
| 03/10/2005
| | 20/10/2005
|
| NBP | TTF,
Netherlands
| Zeebrugge,
Belgium | NBP
| TTF,
Netherlands | Zeebrugge,
Belgium
|
| | |
| | | |
Prices (
/MWh) | |
| | | |
|
Nov-05
| 23.67 | 22.25
| 22.41 | 22.40 | 19.60
| 21.85 |
Dec-05
| 29.83 | 25.25
| 28.67 | 30.45 | 23.50
| 29.30 |
Jan-05
| 34.54 | 25.45
| 32.79 | 36.65 | 25.25
| 34.59 |
NBP premium (
/MWh) | |
| | |
| |
Nov-05
| | 1.42
| 1.26 | | 2.80
| 0.55 |
Dec-05
| | 4.58
| 1.15 | | 6.95
| 1.16 |
Jan-05
| | 9.09
| 1.75 | | 11.40
| 2.06 |
| | |
| | | |
| | |
| | |
|
|
