Highest price NG market in world3 Mar 2018 15:29
https://www.linkedin.com/pulse/highest-priced-natural-gas-market-world-mark-simons/
For the first time in five years Britain became the highest priced gas market in the world. It was clear that the recent closure of Rough, Britain's main gas storage facility, would make it vulnerable to a very cold winter. The first test of the robustness of Britain's gas supplies and infrastructure post Rough has come all too quickly.
Given that National Grid, the British pipeline network operator, issued a gas emergency warning on Thursday this week, it would appear that Britain's gas system has failed. However the lights and radiators have stayed on (although industrial gas consumers have been incentivised to reduce their demand to ease pressure on the system).
In order for customers to continue consuming increasing volumes of gas to heat their homes the price has had to soar. On Thursday gas prices for immediate delivery in Britain reached 350p/therm ($48/mmbtu) - nearly seven times higher than they were during the previous week.
Britain's gas system remains very vulnerable to further cold weather either locally or in North West Europe, given how interconnected the UK system is with its European near neighbours via undersea pipelines from Norway, Belgium and the Netherlands.
Britain was saved to some extent this week by wind and coal. Wind and coal were able to take a lot of the pressure of gas as source for electricity generation. Come 2025 that burden will fall just on wind as Britain's last remaining coal generators are due to be closed by then. It also does not help that the UK's North Sea gas production is in permanent decline and is increasingly reliant on ageing infrastructure. Gas is going to get really expensive on very cold, still days in the future.
Britain is however blessed with significant liquified natural gas (LNG) import capacity via three terminals. This enables gas imports to come from a variety of international sources including the Americas, Africa and the Gulf. Yet as Britain is not normally the highest priced gas market in the world (that tends to be Japan or Asia) the LNG tanks are not as full as they need to be and the British price for gas needs to stay high to attract cargoes and pull them away from other markets.
As the weather starts to ease Britain is faced with an interesting choice about its gas future in the coming years: vulnerability of being the periodic highest priced gas market in the world or investing billions in a gas insurance policy - new gas storage.
The storage option is only going to help when Britain faces its own supply crunch. If Europe is also simultaneously desperate for gas then the UK will still have to pull gas away from those markets via higher prices. This week we have seen gas prices in the Netherlands and Germany increase six times higher than they were last week. Not quite as high as the UK, but still very high versus recent years. Germany has masses of gas storage, but its
Sign In
Follow the stocks
