LNG Cargoes Damping U.K. Gas Prices as Pound Beats Yen

Increased liquefied natural gas deliveries into the U.K. are helping damp prices in Europe’s biggest market as a stronger pound helps narrow the discount of the chilled fuel in Europe to Asia.

The discount of LNG in southwest Europe to prices in northeast Asia fell to its lowest in more than a year on May 5, according to World Gas Intelligence assessments for delivery in four to eight weeks. U.K. gas supply from LNG terminals, which get most of their fuel from Qatar, last month rose to near five-year average levels from near the lowest since 2009 at the end of November, National Grid Plc data show.

U.K. natural gas fell for a fifth month in April after the mildest winter in seven years reduced demand for fuel to pump into storage before the winter heating season. Britain’s currency jumped 9.5 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as spreading economic growth boosts bets the Bank of England will raise interest rates. That compares with a 2.3 percent weakening in the yen.

“The Qataris are getting more dollars through selling U.K. gas in pounds than selling it to the Japanese in yen,” Nick Campbell, an analyst at consultant Inspired Energy Plc in Kirkham, England, said by phone yesterday. “There are two to three cargoes expected in the next few weeks, which is why you are seeing stronger flows as they need to make room for the next cargoes.”

Southwest European LNG cost $11.70 per million British thermal units on May 5, $2.45 less than cargoes for northeast Asia, according to WGI. That’s the smallest gap since April 22, 2013. Britain is set to receive its fifth May cargo tomorrow from Qatar after last month receiving nine shipments from the world’s biggest LNG producer, the most since May 2013, according to data compiled by Bloomberg.

Unexpected Volumes

“They are coming thick and fast and it’s definitely a factor contributing to bearish fundamentals,” Tobias Davis, a gas broker at GFI Securities Ltd. in London, said by e-mail yesterday. “People perhaps were not expecting this sort of volume.”

Gas storage in the U.K. was 66 percent full as of May 11, from 23 percent a year earlier and the highest level for this time of the year since at least 2007, according to data from Gas Infrastructure Europe, a Brussels-based lobby group. LNG stockpiles were at 9.3 terawatt-hours yesterday, a record high for the time of year, National Grid data show.

Global LNG demand will exceed supply until at least 2020, according to BG Group Plc. Consumption increased after Japan’s Fukushima disaster led to the closing of the nation’s nuclear plants, boosting LNG prices in Asia to a record last year.

LNG Trade

LNG supply to Asia rose 6.5 percent last year to 71 percent of global imports after a 9.1 percent jump in 2012 as Japan and South Korea sought to offset lost nuclear generation, according to the Group of International LNG Importers, a lobby group in Paris. U.K. deliveries declined 33 percent in 2013 after a 44 percent drop the previous year.

The world’s LNG trade is expected to increase 31 percent by 2018 from 2012, the International Energy Agency said in a report in June. Asian demand for the super-chilled fuel is sliding due to stockpiles and forecasts for a mild summer, World Gas Intelligence said on May 7.

“There’s a lack of Asian demand due to healthy storage levels in Japan and Korea, therefore LNG arrivals in the U.K. could well continue,” Davis said.

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