Oversupply of gas does not mean price cuts

For decades, the UK has been reliant for its gas imports on pipelines from abroad – most notably the interconnector. As the stock of gas in the North Sea ran down in recent years, and Britain became a net importer, it became clear that this limited link with the Continent was a serious impediment. It tended to force the price of wholesale gas higher unnecessarily in the UK, when it remained relatively low in the rest of Europe.

Now, though, the system is about to undergo a serious transformation. New pipelines have been constructed, as have two new Liquefied Natural Gas (LNG) terminals.
With all of them set to come on-stream this winter, many in the gas industry expect the market to be over- rather than under-supplied for the next four years. It also means Britain will have many different potential sources for its gas. Europe is highly reliant on Russia for its gas needs at present, but the resurgence of LNG – which enables producers to transport gas in boats rather than pipes – means the energy can now be transported directly from other major producers, such as Qatar.

“On paper, for the next four years there will be fairly massive oversupply,” says Patrick Heren of the Heren Report. The implication is lower, and more stable, gas prices. This will come as a relief to both businesses and households following a roller-coaster ride in wholesale and domestic prices recently.

But according to Matthew Monteverde of Argus European Natural Gas, it is still too early to assume that prices will stay low in the coming years.

“We could well be in a boom period where we have some excess supply, but then you always have to be sceptical about these kinds of things,” he said.

“Demand can always be unpredictable. We don’t know how chilly the winter will be. And remember that much of the gas that comes here doesn’t have to. It could easily go to the Continent if that would be more profitable.”

Telegraph