March 23, 2009 / 9:02 AM / 11 years ago

U.S. faces summer LNG surge once Europe has its fill

LONDON/NEW YORK (Reuters) - Europe may lap up a lot of excess liquefied natural gas this spring to refill stocks drained over winter, potentially delaying an expected surge in U.S. imports until the summer.

Suppliers facing weak demand in Asia for the super-cooled gas, just as new production projects start up, should find buyers in Europe where gas stocks were plundered over a cold winter made harsher by Russian gas supply cuts.

Increased LNG imports to Britain and Europe will probably push prices down closer to U.S. levels, making the United States an increasingly attractive market.

Analysts say this may not happen until late spring or summer, depending on the price spread between Britain and the United States.

“Europe has a lot of appetite to soak up new LNG,” said Brison Bickerton, analyst at RBS Sempra in Stamford, Connecticut. “We expect Europe to bid to fill the storage hole before LNG comes to the U.S. in size ... We don’t see a volume of LNG that would depress the U.S. market until mid-summer at the earliest.”

RBS Sempra says Europe could swallow around 100 cargoes to fill its storage shortfall in the next few months. Many analysts expect some to be fed into the European grid using Britain’s growing LNG import capacity.

The effect could further pressure U.K. prices, making Atlantic producers look to the United States as the best place to send LNG.

Only 350 billion cubic feet of contracted volumes of LNG came to U.S. shores in 2008, as prices and demand sucked cargoes east to Europe and Asia.

Now, analysts see an uptick in imports as demand and prices elsewhere fall under the weight of economic decline.

Britain’s gas-price premium has shrunk rapidly in the last few weeks. The spread could disappear altogether if the U.K. gets much more LNG in the coming weeks.

“You have got 3 billion cubic feet of gas a day coming into the U.K., in theory, and that’s going to crater the price big time. Half of that would,” said Niall Trimble, director of the Energy Contract Co in London.

“It wouldn’t take much of a decline in the price in the U.K. relative to the U.S. to see the stuff shifting to the United States.”

The impact on British prices will depend on the amount of supply that gets rerouted to Europe, Nikos Tsafos, an analyst at PFC Energy in Washington, said.

PFC said last week Britain could absorb 15-20 LNG cargoes just to reach comfortable storage levels and forecast average imports of between 750 million to 1 billion cubic feet a day in 2009, with some sent to continental Europe.

Britain can export up to 2 bcf of gas a day to continental Europe through a pipeline to Belgium, but its LNG import capacity will exceed export capacity by 50 percent once two Welsh terminals are fully operational.

Norway can also send 2.6 bcf a day through one pipeline into England, which could spark a sharp fall in spot as it did in late 2006 when prices briefly went negative.

“If Norway kept the flow at a level that drove the NBP down to a very low level, even if its only for a couple of days, that could start to have an impact on the mind-set of the LNG suppliers,” said Frank Harris, head of global LNG consulting at Wood Mackenzie in Edinburgh.

U.K. NBP spot prices were around $4.7 per mmbtu on Friday, compared to $4.2 for U.S. Henry Hub. Analysts say that premium is already small enough to make LNG sellers think twice about sending cargoes to Europe.

“What we have seen so far is a continuous close down of the gap between U.K. and U.S. prices, so you’re actually starting to get to the point when if you are shipping LNG from the west side of the Atlantic it starts to make sense to send it to the U.S,” Tsafos said.

This swing to the United States happens most summers as British prices fall, but it will likely be accentuated this year as more production coincides with slower global demand.

Analysts vary in their forecasts for U.S. LNG imports, some seeing only a slight rise, others seeing up to 4 billion cubic feet coming in, smashing past records.

“We think there is a certain amount of LNG that will come to the U.K. ... But the U.S. has got the ability to take a lot of LNG if people need to put it somewhere. It’s the global sink for LNG.”

Editing by David Gregorio

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