Gas bubble will deflate UK prices by a third

Apr 25, 2005 02:00 AM

Britain’s natural gas market will become oversupplied within two years, transforming a worrying winter shortage of fuel into a glut.
The potential gas surplus emerges from a series of massive import schemes, including the world’s longest sub-sea gas pipeline, linking Norway with Britain.

Together these plans will create a gas bubble of more than 2 bn cfpd by 2007 and send wholesale gas prices into decline for several years. Within two to three years the infrastructure building boom will have created additional gas import capacity roughly equal to Britain’s current annual demand, the Energy Contract Company’s report Gas Market Review 2005 says.
"It’s a massive fluctuation and it will depress gas prices," Niall Trimble, director of the global consultancy, said. He expected wholesale gas prices to fall by about a third over the three winters after this year’s.

The prospect of a gas glut will be welcome news to industrial gas users. Consumers have suffered from soaring prices, caused by diminishing gas reserves in the UK North Sea and a volatile gas-trading system, which has failed to protect major gas consumers from sharp fluctuations in the gas price.
Mr Trimble predicted that the gas oversupply would be short-lived. His forecasts showed a rebound in gas prices in the winter of 2009-10, at which time weakening domestic gas reserves and rising demand would outpace new imports.
He said: "Gas reserves on the UK continental shelf are dwindling. By 2010 the supply/demand imbalance solves itself."

The shrinkage in UK gas reserves has spooked Britain’s gas trading market, causing surges in forward prices. Traders have seen prices triple, prompting claims of foul play and gamesmanship by major energy companies. Investigations by Ofgem, the energy regulator, and a parliamentary inquiry failed to reveal any manipulation of the market.
Instead, market mechanisms appear to be operating, albeit slowly. Billions of pounds are being invested in gas import schemes. Norsk Hydro, the Norwegian energy company, is building the 1,200 km Langeled pipe linking the Ormen Lange gasfield, off Norway, to Easington on the East Coast of England, which will deliver gas equal to a fifth of Britain’s annual demand.

Gazprom, the Russian utility, has ambitions for 10 % of the UK market and a clutch of energy giants are building terminals in Wales and the Thames Estuary to import LNG from North Africa and the Gulf. By 2010, ExxonMobil plans a fleet of 19 LNG tankers shipping gas from Qatar to Milford Haven.
Patrick Heren, an energy consultant, said: "It looks like an enormous overhang of capacity and our North Sea gas is not going to decline at anything like the increase in import capacity." However, he was not convinced that prices would plummet. He reckoned that two-thirds of the import schemes would be flexible, allowing LNG importers, for example, to divert cargoes of gas to the US or the Mediterranean ports if UK prices fell too far.

Source: Times Newspapers
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