The number of LNG tanker deliveries to the UK are highly influenced by the price of gas in the UK market. Prices need to be high enough to provide a sufficient incentive for producers to send their gas to us, rather than to other locations around the world. In recent years, the demand for gas in Asia has contributed to significant competition for available LNG between the East and West. Japan had been needing the additional gas reserves for generation, to offset reduced nuclear output following the Fukushima incident. The graph below shows historical and future LNG gas prices for the UK and Asian markets, as well as the number of LNG tankers delivered to the UK.
During the winter period, Asian LNG prices rose to their highest levels in nearly two years. This lead to an increase in the premium the Asian market has over the UK. This attracted cargoes loading in the Middle East to head to Asia, rather than deliver to Europe.
This contributed to just five tankers arriving in the UK in the three months between December and February. With stock levels low, LNG sendout from South Hook has averaged just 5mcm in February.
This is nearly 90% lower than the equivalent sendout in February 2016.
However, at the start of February, the Asian price fell as temperatures increased in the region and demand dropped. This helped to narrow the spread between Asian and European gas prices.
Utilitywise LNG tanker Market Intelligence
In early February, Utilitywise forecast increased LNG deliveries as European gas prices rose above the Asian market for the first time since April 2016.
There is normally a lag-time of 2-4 weeks before physical tanker arrivals in the UK. The two previous incidences of a European premium over Asian delivered more than 10 LNG tankers in the following month. With this in mind, there were expectations of higher deliveries in March. The prospect of improved sendout and gas supply flexibility helped to push the March gas contract to new lows for the year.
Since the narrowing of the LNG markets, the UK has confirmed two LNG tanker deliveries for March, with a further two expected during the first half of the month. Four tankers’ arrivals would be the highest monthly total for six months. There is also the likely prospect of several more deliveries during the second half of March. The reduced Asian premium has encouraged more tankers from the Middle East to sail west through the Suez Canal to European destinations. LNG deliveries to France, Belgium and Spain have also seen an increase in the last month.
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