Could US Liquefied Natural Gas soon become part of the UK's gas supply?

There has been much speculation regarding the future of Liquefied Natural Gas arriving at UK shores as stocks have been depleting dramatically over the last year. Many have anticipated the arrival of American LNG tankers in the UK, especially after Trump became the new President in January. President Trump believes America should be energy independent from the rest of the world. He also believes that there are billions of Dollars’ worth of untouched shale gas and oil that can supply America and can be sold off to the rest of the world improving the economy. Many believe that 2017 will be the year that this source of LNG will flood the UK gas market.

This week, the first LNG tanker from Peru, South America had arrived in Europe which marks the beginning of new LNG contracts and supply. However, it is worth noting that over the recent winter months, LNG has been extremely sparse. Only 2 LNG tankers docked at UK shores in February 2017, in stark contrast to 8 tankers received in February 2016. This winter has been especially tight, not only for the UK but for mainland Europe. Much colder countries had managed to win LNG gas contracts when demand was significantly increased.

The successful US shale gas industry has yet to affect or supply the UK, however energy reports suggest that an additional source of gas would be beneficial to the UK, especially at a time where UK gas storage is severely reduced. Centrica’s long range storage unit Rough makes up 70% of the UK’s winter supply, however for almost a year this has been under maintenance and as such has been unable to gather and build up gas storage. The facility is coming to the end of its natural life, and the many issues surrounding its ability to operate are still ongoing despite extensive maintenance already carried out at site. Should the site close permanently, the UK would struggle to meet winter demand for gas and heating. At the moment, the UK is dependent on long standing LNG contracts with Qatar and gas imports from Norway. However the gap between supply and demand is becoming shorter.

 An increase in LNG supplies from the US would help to weigh on gas prices ultimately, and should there be a surplus of arrivals, LNG could be stored for later use. Some LNG liquefaction projects are reportedly under construction for delivery at the end of this year, however this is not set in stone. Certainly as US stockpiles of shale gas and oil increase – they are already at their highest point since October 2015 - then we could expect to see some imported American gas. There could be deals from North or South America, but as there is much uncertainty in America after Trump had been elected, there could be a delay in striking a deal any time soon.

 

 

 

Sources: Bloomberg, the Telegraph, Npower, EDF, SSE, Gazprom