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Natural-Gas Swings in U.K. Drop to 11-Year Low: Energy Markets
2010-10-28 14:03:37.738 GMT
By Ben Farey
Oct. 28 (Bloomberg) -- U.K. natural gas is trading in the
narrowest range in 11 years as increased imports and storage
capacity counters concern that North Sea production is waning.
Gas for delivery next month at the National Balancing
Point, Britain's hub for the fuel, costs between 45.4 pence (72
U.S. cents) and 48.7 pence a therm in October, the smallest
difference for the period since 1999. Prices fluctuated between
29.05 pence and 51.5 pence during the summer months. October is
the first month of the winter season that ends in March.
The U.K. has spent 5.3 billion pounds on pipelines,
liquefied natural gas terminals and storage facilities since
2005 amid falling North Sea output and increased demand for gas-
fired power stations, according to Oxford, England-based Poeyry
Energy Consulting. Global demand fell 2.1 percent last year, the
most since at least 1970, BP Plc data show.
"There isn't the risk" of large price swings at the
moment, John Fahy, managing director of Eras Ltd., an energy-
research firm, said yesterday in an interview from London. "The
market's a lot more flexible than it was before."
U.K. gas's historic volatility, a gauge of price swings
over the previous 30 days, has fallen 58 percent this month to
20.2, dropping below that of Brent crude for the first time
since July 2009, according to data compiled by Bloomberg. The
measure is at its lowest level since May 12, 2006. A year ago,
gas's volatility was 73.8, compared with 37.6 for Brent.
LNG Dependence
North Sea production is falling about 10 percent a year,
data from the Department of Energy and Climate Change show.
That's made the country more reliant on LNG imports, which rose
to 25 percent of overseas supplies last year, from 2 percent in
2008, according to the DECC. LNG inventories reached a record on
Oct. 13, figures from London-based National Grid Plc show.
The U.K., Europe's biggest market for gas, ships in almost
2 billion cubic feet a day, making it the world's fourth-largest
LNG importer, Bank of America-Merrill Lynch said in an Oct. 25
report. It was the eighth-biggest buyer last year, the bank
said.
Infrastructure investments have boosted Britain's annual
capacity by about 110 billion cubic meters, according to Poeyry.
That's 27 percent more than the country used last year, BP data
show. A further 16 billion cubic meters of storage projects are
"at various stages of development," Poeyry said.
Prices may become more volatile during the summer months
when North Sea and Norwegian fields typically close for
maintenance and stockpiles are replenished, though that may be
offset by imports from Qatar, according to Richard Sarsfield-
Hall, an analyst at Poeyry. Qatar Petroleum is the majority
shareholder in the South Hook LNG terminal in southern Wales,
Europe's biggest.
'Damping Effect'
"Continued supplies of Qatari LNG would have a damping
effect on volatility," he said.
Less than 43,000 gigawatt-hours of gas is in U.K. storage
sites, the lowest amount in five years, following the nation's
coldest winter in more than 30 years.
"Based on all of the available evidence, we expect another
winter with below-normal temperatures across the U.K. and the
western half of the mainland, although not nearly as severe as
last winter," Todd Crawford, chief meteorologist at WSI Corp.
in Billerica, Massachusetts, said Oct. 25.
Supplies are unlikely to tighten in the Atlantic Basin and
Europe before 2015 even as European gas output declines, the
International Energy Agency said in a June report. Surplus
production capacity last year was about 200 billion cubic
meters, it said.
Shale gas production in the U.S. has also curtailed
American LNG imports, making more gas available for Europe.
"Buyers are comfortable," Fahy said. "There's no need to
hedge marginal supplies as there's ample gas out there."
For Related News and Information:
Top Gas Story Page: TGAS <GO>
U.K. Gas Prices: UGAS <GO>
U.K. Power Prices: ELEU <GO>
National Grid Flow Rates: NGRF <GO>
--Editors: Rob Verdonck, Mike Anderson
To contact the reporters on this story:
Ben Farey in London at +44-20-7673-2369 or
bfarey@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss on +44-20-7073-3520 or
sev@bloomberg.net
