U.K. Summer Gas May Rise on European Demand, Deutsche Bank Says
2011-01-11 12:59:10.852 GMT
By Ben Farey
Jan. 11 (Bloomberg) -- U.K. summer natural-gas prices may
rise as buyers from mainland Europe increase their purchases of
the fuel from Britain through Interconnector (U.K.) Ltd.'s
pipeline to Belgium, according to Deutsche Bank AG.
"European buyers will seek to replace contract gas with
summer spot-market purchases, raising exports through the
interconnector as occurred in summer 2010," analysts at the
bank including Michael Hsueh and Mark Lewis in London said in a
Summer gas may gain to 56.4 pence a therm under the bank's
"base case" which assumes liquefied natural gas imports of 45
million cubic meters a day during the six months through
September, they said. The summer contract advanced 1.9 percent
to 54.15 pence a therm as of 12:30 p.m. London time today.
Most gas on mainland Europe is sold under multiyear
contracts linked to the cost of crude-oil and oil products, with
a lag of three to nine months. Brent crude climbed to as much as
$96.46 a barrel on the ICE Futures Europe exchange today, its
highest since October 2008.
The price difference between the summer and winter gas
contracts may narrow due to increased demand for U.K. summer
gas, according to the report.
This may cause "a reversal of the traditional seasonality
of delivered prices" with summer gas more expensive than winter
gas once delivered, Deutsche Bank said.
Maintenance at Norway's Kollsnes gas-export plant and Royal
Dutch Shell Plc's Ormen Lange field scheduled for May might
coincide with a rise in exports to Belgium through the
reversible pipeline and boost summer prices, the analysts said.
The greatest risk to the summer price forecast is higher
LNG imports as Qatar starts new plants and production from GDF
Suez SA's Gjoea field in Norway, Deutsche Bank said.
"If we experience the same interconnector demand uptick
this year, it will coincide with heavy Norwegian maintenance, so
the price effect could be greater," according to the report.
Prices for the winter contract, the six months from
October, may fall, Deutsche Bank said, giving a forecast of 54
pence a therm. The contract was at 61.15 pence a therm at 11:45
a.m., according to broker prices on Bloomberg.
The biggest risk to the winter price is "an extended
infrastructure outage," the analysts said.
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