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Chart of the Week


Will LNG continue to steer the UK gas market in 2019?

Tim Dixon Team Lead

The historically close relationship between oil prices and European gas contracts has been eroding in recent years, with the traditional price setting role of oil-indexed Russian gas contracts consequently having a decreasing impact on GB energy markets. Oil’s influence on the gas market is diminishing as gas market fundamentals evolve, particularly with the growth of Liquified Natural Gas (LNG), which has the potential to be delivered globally without the need for a network of cross-border pipelines. Growth in price-sensitive LNG supply is driving an increasingly close relationship between European gas hubs and Asian spot LNG prices. In particular, the last quarter of 2018 marked a significant rise in LNG imports into Europe and GB – with a total of 16 LNG cargoes arriving at GB terminals in December, up from 12 tankers in November and nine in October. This trend has been driven by the narrowing of the cross-market spreads between Northeast Asia and European hubs, with prices in the latter showing significant gains for much of 2018, while the Asian market found itself periodically oversupplied. Consequently, with LNG deliveries often the marginal source of gas supply in GB, we have seen a closer correlation between NPB gas contracts and Asian spot LNG prices, as well as a diminishing correlation with oil prices. This is shown in our Chart of the Week, with Asian spot LNG prices often showing a close relationship with the NBP front month gas contract throughout 2018, especially at times when LNG import levels are high. The market price ...

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