'Market rigidities' shielding European LNG prices - Decc
London, 2 October (Argus) — Rigidities in the LNG market are shielding the UK and Europe from too much exposure to volatile prices, according to Chris Barton, head of international and domestic energy security at the UK Department of Energy and Climate Change (Decc).
Asked at a Gas Forum conference today whether he is concerned about a link between European LNG prices and high prices in northeast Asia, Barton said it will be some time before the LNG market attains the liquidity of the oil markets.
“While we are seeing some changes, we are many years from a point where Asian gas markets have a direct influence on UK and European prices, because of there being so many rigidities in the market,” he said.
A high number of Asian long-term LNG contracts with fixed destination clauses, a small spot tanker market, and high infrastructure costs all contribute to the illiquidity of the global LNG market.
Barton added that although the UK is protected from price increases, it is also unlikely to benefit from price falls, both in Asia-Pacific and elsewhere.
Current low gas prices in the US because of the shale gas revolution will not be mirrored in the UK in the short term because of the high costs of building liquefaction terminals and LNG tankers, he said.
In the five months between the end of May and the end of September, the ANEA price — the Argus des LNG assessment for northeast Asia — fell by $5/mn Btu to $13.20/mn Btu in the six-to-eight week ahead window, while the Argus des LNG assessment for northwest Europe fell by just $0.60/mn Btu to $10.10/mn Btu in the same window.
But this price stability in northwest Europe does not deter sellers, according to the general manager of South Hook Gas, Rashid al-Mari.
“There is no doubt that the Qataris continue to look at the UK as an attractive market,” he said. “As well as South Hook there are also some discussions about more investments in the future.”
South Hook Gas owns and manages capacity at the UK's South Hook LNG import terminal. The company's shareholders are Qatar's state-owned QP with 70pc and ExxonMobil with 30pc.
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