Susceptibility of GB markets to LNG volatility may rise

Susceptibility of GB markets to LNG volatility may rise: Liquified Natural Gas (LNG) prices and demand have enjoyed unprecedented momentum in recent months, with Asian spot LNG prices reaching an all-time high of 211.94p/th on 15 January. However, LNG’s recording break run has ended in the last few weeks, with prices having fallen significantly. In fact, Cornwall Insight records showed a 71% decline in prices on 29 January than the same day a week earlier.

Sam Peek, Analyst at Cornwall Insight, looks at the ramification of volatile prices on the GB market.

“Throughout this dramatic price growth and subsequent decline, LNG prices have had ramifications for the NBP gas price in GB. LNG is often seen as the marginal source of gas supply in GB and much of Europe, and we have observed gas prices become quite sensitive to LNG price movements in recent years.

“As the spot Asian LNG price soared, GB day-ahead gas prices reached their highest level in three years, hitting 73.50p/th on 12 January, whilst gas contracts along the forward curve also saw significant price growth.

“This impact also fed into the GB power market, with day-ahead power prices soaring (although this was also due to tight power supply margins). Power contracts along the forward curve also saw significant growth. As gas-fired power stations remain the marginal generators in the power market, movements in gas prices remain important for electricity prices.

“The susceptibility of GB and European gas markets to global LNG prices may be set to increase. With no concrete plans for new long-term storage facilities in the UK and declining UKCS supplies, it could point to a greater LNG dependency in the coming years.

“Global competition for LNG may be set to rise. However, future gas demand may be replaced by hydrogen or greater green gas usage produced domestically, or even a switch to the electrification of heat. National Grid‘s Future Energy Scenarios highlights that, under electrification scenarios, natural gas demand may decline significantly. Under scenarios using hydrogen, the hydrogen itself may come from the reformation of natural gas (known as blue hydrogen), in which case our gas import dependency will remain.”

Thank you to Cornwall Insight for supplying this article.

Susceptibility of GB markets to LNG volatility may rise

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