FT Alphaville has written a lot about Nymex Henry Hub natgas futures prices and the supply glut potentially being formed in the US market.
We’ve not, however, touched upon the UK market quite as much. On Wednesday, though, the following chart did catch our eye:
As the chart shows, this season has failed to deliver the traditional price spike associated with colder winter weather.
Consider the commentary from industry energy advisory Utilyx on Wednesday (our emphasis):
Prompt NBP gas prices dropped on Tuesday, with a heavy system and mild temperatures weighing on prices. Flows from Norway ramped up significantly throughout the day, with Langeled imports delivering above 60mcm/day throughout the session compared to 11mcm/day on Monday. Rumours circulated that the increase was due to problems with the Zeepipe in exports to the continent, with flows being diverted to the UK instead. The curved suffered a similar fate, with prices dropping heavily along the entire length in a continuation of the past week’s bearish trend. Notably, Smr-10 contracts have now fallen below their Henry Hub equivalents, with some traders commenting that the LNG-link between US and UK gas prices has for the most part disappeared in light of the increasing number of available cargoes. Weak European gas markets have added to the bearish sentiment.
If we read this correctly, what’s happening is that the means to transport gas across continents via liquefied natural gas (LNG) has essentially helped the US export natgas weakness to Europe and the UK so much so that the arbitrage window has, for now at least, been shut off.
On that note, Bloomberg reported on Wednesday that weak demand in Spain and Portugal may result in the two countries diverting as much as 30 per cent of next year’s liquefied natural gas deliveries — most likely to the East.
This follows news from the IEA at the beginning of November that shale gas discoveries in the US may now eradicate the need for liquefied natural gas imports from abroad completely, come 2015.
While demand from Asia will most likely mop up residue supply for now, the overall effect on global natgas prices is likely to be far reaching, according to the IEA. This is especially so given that the billions ploughed into LNG development over the years have only gone to smooth regional market variances and the price differentials that come with them.
Related links:
Is Nymex natgas the ‘Yugo’ of the the energy complex? – FT Alphaville
IEA: Low-carbon plans to cause gas glut - Guardian
Oversupply of natural gas forecast by International Energy Agency – FT