An end-of-winter slew of LNG arrivals to the UK includes the first ever cargoes from the Dominican Republic and Peru.
The tanker Gallina, owned by Shell, delivered LNG produced using gas from the Camisea Project in Peru, to National Grid’s Isle of Grain Terminal in Kent, on the 4th of March, with the Dominican cargo having arrived 8 days earlier. The new sales come at a time when LNG prices are under pressure amid rising supplies of spot cargoes, as projects offer spot buyers volumes that would have otherwise been shipped to term customers.
In addition to the two Isle of Grain arrivals, at least two other cargoes have been delivered over the last couple of weeks to the UK through the South Hook terminal near Milford Haven, after a lull during the middle part of the winter. Both these were under long term contracts and from Qatar.
Simon Culkin, Terminal Manager at Grain LNG, said: “We’re the leading LNG import terminal in terms of attracting a diverse mix of gas supplies from all over the world… Grain has the most extensive gas blending facility in Europe, which enables the terminal to process LNG which would normally be outside of the UK’s gas specification.” The Isle of Grain is the largest facility of its kind in the UK and the 8th largest in the world.
Prompt gas prices in the UK have been on a rollercoaster ride over recent months, with day-ahead prices sinking to about 20 pence per therm (ppt) in September, before rebounding steadily up to 60 ppt in early February, when cold winter weather and gas storage issues tightened the market. Since then the price has fallen back to less than 45 ppt. The forward curve has been far less volatile, but has moved in response to the prompt market to some extent, so the recent fall will make the UK a less attractive destination for the LNG going forward – unless prices fall further elsewhere.
Local alternative?
Imports are becoming increasingly important to meet UK demand, which is on the rise again, while North Sea output is in decline. But instead of importing LNG, some commentators say the UK should frack its own gas, keeping jobs and wealth in the country, rather than the more carbon intensive LNG option – which can end up with imports coming from environmentally sensitive regions like the Peruvian Amazon.
The government's official adviser, the Committee on Climate Change, says current evidence suggests that "well-regulated domestic production could have an emissions footprint slightly smaller than that of imported liquefied natural gas". But so far only one shale gas well in Yorkshire has been approved, and in Lancashire construction has started at one site. Drilling is expected to start by the end of the year.
National Grid said that secure and affordable gas supplies from multiple sources is proving more important as the government moves towards phasing out coal fired generation by 2025, alongside the retirement of existing nuclear power stations.
Similar arguments can be made in Germany and France, where substantial shale reserves are thought to exist. Both countries are facing rising gas demand and falling domestic production, making them increasingly reliant on a combination of Russian Imports and LNG, including from US shale gas, as well as from environmentally sensitive or politically unsavoury sources.