US LNG Exports Signal Shift in Global Energy Markets
UK gas prices hint at a potential influx of US liquefied natural gas (LNG) shipments, three years from now. Traders are already pricing in expectations of this flow, even though companies have yet to break ground on export plants in the Gulf of Mexico.
BP's Michael Smith notes that forward prices on the UK gas market may reflect the possibility of US exports to the UK, taking into account liquefaction and shipping costs. He explains that adding these costs to the US futures curve results in a price close to the cost of producing, liquefying, and shipping US gas to Britain from a proposed export plant in Louisiana.
The current forward prices on the UK gas market for 2015 have traded at around $9.40/MMBtu, which is comparable to the cost of transporting US LNG to the UK. This suggests that US export economics may be setting a floor price for later-dated UK gas contracts.