LONDON European gas markets could see tight supply at the start of the high-demand winter season as Qatari liquefied natural gas (LNG) maintenance is expected to curb exports, coinciding with a potentially colder-than-usual early winter, analysts said.
The world's largest LNG producer, Qatargas, said it will shut at least three of the world's biggest liquefied natural gas (LNG) producing plants at different times during a rolling maintenance program planned this autumn.
The maintenance work could cut LNG supplies to Europe and especially Britain, which is growing increasingly dependent on the liquefied fuel, European gas analysts said on Tuesday.
"It definitely has the potential to spark a sizeable increase in prices, but it comes down to whether revolving maintenance will impact deliveries," said Craig Lowrey, consultant at The Utilities Exchange Energy Services.
Qatargas operates seven LNG trains with a capacity of 42 million tonnes per annum (mtpa) and has signed several deals since March to sell more LNG to new markets in addition to Japan.
British benchmark front-season gas prices soared six percent last Friday on fears the maintenance could cut supply to northwest European consumers already worried about Qatari LNG diversions to higher paying Japan, where gas demand has boomed since a March earthquake shut nuclear power plants.
"I think they (Qatargas) have to do maintenance and are doing it before the winter demand really kicks in," said Keith Bainbridge, LNG consultant at Platou.
"The main issue is that this (maintenance) could seriously curtail LNG intakes at the start of the winter period. An early onset of winter this year would ruffle the market, and prices would just be expected to go upwards," BarCap analysts said in a report published on Tuesday.
Forecasts by U.S.-based Weather Services International showed the early winter months of October and November will see temperatures fall to below seasonal norms.
"Maintenance so close to the winter has spooked the market as there is always the danger of overruns," said Andrew Horstead, head of research at energy consultancy Utilyx.
PREPARING FOR ECONOMIC DOWNTURN
Other analysts said Qatargas' decision to cut LNG exports indicated that suppliers were bracing themselves for lower demand during the economic slowdown clashing with the potential of Libya restarting gas supplies to Europe soon.
"Qatargas is preparing itself for slower economic growth and the possible return of Libyan gas supplies," Emmanuel Fages, head of energy research Europe at French bank Societe Generale said.
"Gas demand is already 9 percent below 2010, mostly for climate reasons, but they (Qatargas) are signaling that they will not let prices drop below 50 pence per therm despite slower economic growth, so they are managing their production capacity in order to manage price expectations," he said.
Despite these supply cuts, Fages said he did not expect marginal costs to be affected as lower LNG imports would be compensated by increased pipeline sales from Gazprom into Europe.
"The move is more about protecting the price floor of 50 pence per therm, rather than one to push prices up," he said.
Michael Stoppard, managing director for gas at Global Insight said that even without Qatar's move, the LNG market was likely to tighten.
"We see the loose market that existed since the financial crash in 2009 and 2010 has now gone away. We see the market as tightening, despite the potential for lower growth.
The International Energy Agency said in June that it expected LNG demand to tighten significantly in the coming years.
(Reporting by Henning Gloystein, Karolin Schaps and Oleg Vukmanovic; editing by Jason Neely)