Anyone looking to the U.S. Gulf of Mexico and wondering where all the liquefied natural gas (LNG) is need only look across the Atlantic to the United Kingdom, where gas prices are higher and tanker traffic is brisk, an analyst noted Monday.
“We suspect that low U.S. natural gas prices will encourage a steady stream of imports into the higher-priced UK market, which in turn will keep UK prices from rising,” wrote Credit Suisse analyst Teri Viswanath in a note Monday. “We believe that increased price alignment between the U.S. and UK gas markets this year will likely offer up opportunities for investors to exploit what we believe to be unsustainable high UK winter prices.”
So investors should consider selling November 2009 UK gas futures, Viswanath noted.
A “dramatic change” in global LNG balances has created supply-side competition for premium markets, such as the UK. “However, the siren call of relatively higher netbacks has resulted in a steady stream of LNG cargoes into this market, which we believe should inevitably pressure UK prices lower,” the analyst wrote.
“Even with a third of the calendar year left, the UK has already taken in more than three times the level of LNG imports compared to the two previous years.”
A nearly five-fold expansion in UK regasification capacity will counterbalance reliability concerns that have made for a premium in the UK winter strip, Viswanath noted. “And although the Q409 strip has already shed roughly 35% of its value in the last six months, we expect prices will continue to weaken as uncommitted LNG cargoes continue to flow into this market.”
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