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Pipeline crunch helps spur surge in LNG prices
Rising fuel demand in Asia, Europe and the United States and a shortage of pipelines are pushing liquefied natural gas prices to records, benefiting producers such as BP and hurting industrial firms from Spain to South Korea. (The Standard)

The price of spot LNG being shipped to Europe may more than double to US$15 (HK$117) per million British thermal units, Purvin & Gertz energy consultant Victor Shum said.

Jean-Francois Capelle, vice president for LNG marketing in Asia at Paris-based Total, the world's fifth- biggest LNG supplier, said: "The market's really tight. The cargoes are just not available."

Gas prices have soared 89 percent this year at Henry Hub, the US benchmark gas terminal, on supply disruptions caused by hurricanes in the Gulf of Mexico.

In Britain, prices have tripled in a year because of lower output from the North Sea, prompting BP, Europe's biggest oil company, to import cargoes and consumers such as Terra Industries to cut output.

"The globalization of LNG is happening," said Audie Setters, vice president of international marketing and business development at Chevron Global Gas, a unit of Chevron. "Henry Hub prices have become the benchmark not only for Europe but for spot cargoes across the world today."

Natural gas has risen sixfold on the New York Mercantile Exchange since September 2001 and touched a record US$14.75 on October 5.
Consumers have to pay more because the fuel is a priority in cold, developed nations, Shum said. "Heating is a basic need in life, not a luxury."

Higher LNG prices may reduce profit at Korea Electric Power or KEPCO, the nation's dominant utility, in the fourth quarter because the government will not allow it to raise tariffs. "KEPCO takes on all the losses because it can't pass on the costs to consumers," said Ji Chang Young, manager of investor relations. "That's the dilemma for us."

Japanese utilities led by Tokyo Electric Power, the world's second-largest LNG buyer, and Tokyo Gas plan their largest-ever price hikes in January after gains in the cost of LNG and other fuels. BP is among producers importing LNG to the Isle of Grain terminal in southeastern England. BP is benefiting from prices more than doubling in the past year as output from the North Sea declined and temperatures dropped below freezing.

The current British price may be a record for spot LNG anywhere in the world, said Frank Harris, vice president of global LNG at Wood Mackenzie Consultants.

BP head of trading Vivienne Cox said: "We will go to the best-priced market. If the UK gas prices are higher than other regions, it will be logical to bring it here."

The British government on November 18 said independent consultants will assess the prospects of a gas shortage this winter and potential harm to the economy. Terra Industries, Britain's largest industrial natural-gas consumer, that day became the first major user of the fuel to announce a production cut.

Competition for supplies is intensifying as record oil prices in the past two years prompted utilities to increase the use of cheaper, cleaner LNG. A drop in supply from Indonesia, the world's biggest seller of the fuel, is also forcing Asian buyers such as South Korea to seek more cargoes outside the region.

"What's creating the fluidity in the spot market are the prices in the US and Europe," said Gavin Law, head of global LNG at Wood Mackenzie. "The Koreans have had to pay a premium to secure them against the US market."

Last year, about 26 percent of the natural gas traded across borders globally, or 178 billion cubic meters, was delivered in liquid form by ships, according to BP's Annual Statistical Review of World Energy. Pipeline trade totaled 502 billion cubic meters.

Spot trading now accounts for about 12 percent of global LNG output, said Capelle, who is based in Tokyo."In this market, buyers may even have to pay a premium over" US benchmark gas prices, he said. "Even after offering a premium, Japanese buyers are finding it hard to secure spot cargoes." BLOOMBERG

Source: The Standard

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