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In the pipeline: Qatar’s Japan LNG deal to boost UK gas prices

In the pipeline: Qatar’s Japan LNG deal to boost UK gas prices

Qatar's weekend LNG deal with Japan to cut UK supplies; UK gas prices likely to rise on lower LNG imports; Gains likely to be limited by coal, European gas demand

April 18, 2011 1:35 by

Wholesale British gas prices are likely to rise on Monday after top liquefied natural gas exporter Qatar agreed to send more than 60 extra cargoes to Japan, but price increases in the world’s benchmark gas market should be dampened by plentiful supply.

The deal by Qatar, the world’s top LNG producer, to sell Japan an extra 4 million tonnes of the fuel over the next 12 months means there will be less gas coming to Europe than was likely before Japan’s nuclear crisis.

British gas prices surged in the week after the March 11 quake and tsunami that wrecked one of Japan’s biggest nuclear power plants on concern that large volumes of LNG might be diverted to Japan, already the world’s top importer.

A flurry of LNG ships arrived in Britain in the weeks after the quake but the number heading to the UK has shrunk over the last week. Prices in the benchmark UK NBP market have fallen from their post-quake highs on expectations Qatari LNG supplies will remain plentiful. The Gulf Arab state has started up two huge new production facilities, known as trains, in the last six months, swelling its LNG capacity to around 77 million tonnes per year.

But Saturday’s confirmation that more than half the output of one of those new trains will head for Japan rather than Europe is likely to push prices higher again this week.

“The news will add to the bullish end to the week, which saw the Winter 2011 contract firm 1.8 percent from the open on the back of stronger oil and general profit taking after a relatively soft week,” Nick Campbell, a UK gas market analyst at consultants Inenco, said.

“This could see a ‘short squeeze’ where some participants buy the contract in order to push the market higher on what is, at first glance, relatively bullish news. If, however, we analyse the data in greater detail, (Qatar) was still seeking buyers for its new trains and therefore had spare capacity to sell to the Japanese.”

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