Industry Trend Analysis - Growing Role As An LNG Hub - MAY 2017

BMI View: The UK will increasingly grow its presence as an LNG hub as capacity re-opens, domestic demand grows and reloading rises.

Despite an underwhelming volume of LNG imported in Q416, with preliminary data showing that total volumes for the quarter were the lowest since 2008, we hold to our constructive outlook for the UK's LNG import growth ( see ' LNG Imports: Full Steam Ahead ' , 14 October 2016). The weak performance of LNG imports in Q416 can be attributed to a spike in global spot LNG prices due to a number of outages at export facilities and strong Asian demand which brought up prices above USD9/mnBTU. Higher LNG prices favoured pipeline imports, with volumes from Norway hitting a record of 10.5bcm in Q416. However, LNG spot prices have fallen significantly since the start of 2017 and we forecast further price weakness over the coming years, as a global oversupply keeps prices depressed and therefore more competitive with pipeline supplies ( see ' JKM: Short-Term Strength Masking Long-Term Weakness ' , December 8 2016).

Trafigura has confirmed that it is looking to reopen its Teeside LNG facility, which it closed in 2012 due to a lack of activity. The reopening signals the growing appetite for gas imports in the UK, with LNG cargos becoming increasingly competitive with pipeline imports, as hub-linked exports from the US grow in availability. We have previously highlighted that the UK will become increasingly dependent on gas imports, as domestic production declines and gas consumption in the domestic power market rises ( see ' Death Of Coal Drives Gas Consumption Upgrade ' , 25 May 2016). The Swiss commodity trader is looking to open the facility by mid-2018 at the cost of USD30mn, to increase its exposure to the UK's growing LNG market.

Norway Imports Championed Q416
UK Gas Imports, Million Cubic Metres
Source: DEIS, BMI

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