U.K. natural gas may be poised to lose its biggest premium in 19 months against New York-traded supplies as Qatar begins projects to export liquefied fuel. The Middle East emirate, the world’s biggest liquefied natural gas producer, said Oct. 6 it plans to start two plants by February, boosting export capacity by 15.6 million metric tons, or about 25 percent of annual U.K. consumption. Qatar also restarted as many as six units that were shut earlier this year for maintenance amid a glut of the fuel. The premium of front-month gas on London’s ICE Futures Europe exchange relative to contracts on the New York Mercantile Exchange rose to $3.80 per million British thermal units at 1:15 p.m. in London, its widest level since Feb. 9, 2009, amid record demand for U.K. fuel supplies from European buyers. The average difference this year has been $1.33 per million Btu. “I would not expect the premium to continue to widen,” said Oswald Clint, an analyst at Sanford C. Bernstein & Co. in London. “The last Qatar LNG trains coming on stream in the fourth quarter and early 2011 will also put pressure on the U.K. price if they choose this market.” Gas for next-month delivery at the U.K.’s National Balancing Point traded at the equivalent of $7.426 per million Btu at 8:41 a.m. in London, 39 percent higher than at the start of the year. The next-month contract for Henry Hub in Louisiana, the main delivery point for U.S. supplies, has declined 35 percent this year to $3.614. U.K. gas hasn’t cost twice as much as U.S. supplies since Jan. 30, 2009, after which it slid 38 percent by Feb. 16 as milder-than-normal weather and the recession sapped demand. ‘Run Too Far’ “The National Balancing Point-Henry Hub differential has run too far,” Barclays Capital analysts led by Michael Zenker in New York wrote in an Oct. 5 report. “Key to the rally of NBP prices was also the slowing of LNG imports late in the spring as Qatari shipments to the U.K. dropped off during a deep maintenance season.” Gas prices in Britain will average $5.62 per million Btu in 2011, reducing the spread to $1.52 next year, the bank forecast. “Upcoming liquefaction plants and slowing global demand growth next year point to no shortage of LNG supply in the Atlantic Basin and in the U.K., in particular, in 2011,” Barclays said. U.K. front-month gas has advanced 4.8 percent since Sept. 24 as exports to mainland Europe climbed to a record following the reopening of Interconnector (U.K.) Ltd.’s 145-mile (230- kilometer) pipeline to Belgium after two weeks of maintenance. Record Exports European buyers including GDF Suez SA, the owner of Europe’s biggest natural-gas network, are increasing fuel purchases on markets, foregoing more expensive supply under contracts linked to the price of oil. Brent crude oil futures have risen 24 percent over the past year to $83.43 a barrel. Flows of gas from the U.K. to the rest of Europe rose to about 59 million cubic meters on Oct. 5, the highest level since the pipeline started in 1998, London-based Interconnector said in an Oct. 6 e-mail. Britain “will remain undersupplied as least through the end of November and possibly December, as European demand through the Interconnector remains strong,” Michael Hsueh in London and Paris-based Mark C. Lewis, analysts at Deutsche Bank AG, said in a Sept. 28 report. Increased imports from Qatar and Norway and withdrawals from storage will create an oversupply in the first quarter, they said. Qatar is seeking to boost LNG capacity to an annual 77 million tons from 14 production units, or trains. The final two trains will start by February, Ahmed Yousf al-Khulaifi, chief operating officer of Qatar Liquefied Gas Co., said Oct. 6. The Persian Gulf country accounted for 20 percent of global exports in 2009, according to BP Plc, Europe’s second-largest oil company. Oil-Linked Contracts Qatar idled export plants this year to curtail supply amid a global glut. The emirate sells most of its gas under multiyear contracts, with the rest shipped to spot markets. As much as 15.2 million tons of LNG has been contracted for sale by Qatar to the U.K. in 2011, up from 13 million this year, according to statistics by state-owned Qatar National Bank. The U.K. is Europe’s biggest gas market. LNG and Norwegian gas shipped into Britain can be transported through the Interconnector to clients in France and Germany. With North Sea fields ageing, the government predicts the U.K. gas market will be entirely dependent on imports by 2030. “North-Sea gas supply is probably in an irreversible decline,” said Cameron Horwitz, an analyst at Canaccord Genuity in Houston. In the U.S., “we do not have to import given the proliferation of the gas-shale technology.” Shale Gas Gas shipments to the U.S. will be 1.25 billion cubic feet a day this year, the Energy Department in Washington said on Sept. 8, down from the 1.83 billion it forecast in February. Production will rise 2.1 percent to 61.21 billion cubic feet a day this year, the highest level since 1973, it said. The number of horizontal rigs in the U.S., which are mostly used in shale-gas drilling, was a record 912 in the past two weeks, according to Houston-based Baker Hughes Inc. Production from shale wells rose 71 percent in 2008 from a year earlier to 2.02 trillion cubic feet, according to Energy Department data. It will account for 34 percent of output in 2035, doubling from 17 percent in 2008, the data show. “U.S. prices are largely not showing strength because of surplus production, and that situation is not getting any better,” said Teri Viswanath, a director of commodities research at Credit Suisse Securities USA in Houston. “Europe is generally over-supplied,” he said. “The only issue is there are fewer suppliers in the room, so they can keep that market somewhat balanced.” To contact the reporters on this story: Rob Verdonck in London at rverdonck@bloomberg.net Moming Zhou in New York at Mzhou29@bloomberg.net To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

Source