The UK is set to import its first ever cargo of liquefied natural gas from Peru as a pricing dispute forces shipments to Europe, with growing supplies of the supercooled fuel carving out new export routes.
Peru LNG loaded a vessel this week that has its destination listed as the UK, according to data on Lima-based Perupetro’s website. It is carrying about 61,146 metric tonnes of LNG.
The shipment comes as growing supplies of LNG, which are set to expand by almost 50 per cent between 2015 and 2020, press prices and make it more competitive against coal and other power sources.
Royal Dutch Shell, which has a 100 per cent offtake agreement with Peru LNG, has had to divert supplies away from Mexico as lower international prices have provoked a price dispute between the two countries.
The shipment from Peru set for the UK would beat the US, whose bumper supply of shale gas is set to turn it into a major exporter. With Australia and Russia also preparing to export more, north-west Europe is predicted to see growing supplies by 2020.
The Peruvian government’s margins have been pressed by a 15-year deal with Mexico. The contract has tracked US Henry Hub prices, which have more than halved over the past several years as shale gas supplies ballooned. Efforts to change the terms of the linked contract have been unsuccessful.
The Gallina LNG tanker will come from Peru via the recently expanded Panama Canal. Industry analysts say they believe that the cargo is probably being taken by Shell to the Dragon LNG facility terminal in Wales, where it now has a 50 per cent stake after the acquisition of BG Group. It could still be diverted to another buyer.
Mexico, in the meantime, has issued tenders for LNG from other suppliers.
Ed Cox, editor of Global LNG Markets at ICIS, which provides pricing information and market analysis, said the shipment, while noteworthy, may just be a “one-off”.
“Shell has a large mix of buyers globally and access to import terminals so this is unlikely to be the start of a trend of more Peruvian cargoes coming to the UK.”
Shell declined to comment on the Peru shipment.
The shipment to the UK comes as UK natural gas prices recently reached the highest in more than two years. UK LNG imports have fallen this winter as Qatar, the biggest exporter of the fuel, has diverted deliveries to customers in Asia where cold weather has boosted prices further.
Although analysts say the UK is still adequately supplied by stored and pipeline gas — the country has taken in supplies from Belgium and Netherlands — prices have crept higher in recent weeks.
The price of natural gas trading in Europe, as measured by the UK National Balancing Point (NBP) front month hub price, hit $7.47 (£6.12) per million British thermal units on February 3, the highest since November 2014.
But the price, which has traded at lower levels than elsewhere in Europe and East Asia of late, has since fallen to $6.68/mmbtu on milder weather forecasts.
Thierry Bros, Senior Research Fellow at the Oxford Institute for Energy Studies, said the UK and Europe would benefit from the coming glut of LNG and could boost imports.
“We need something more consistent, particularly as we diversify away from Russian piped gas. This means we need to attract whatever foreign supplies we can,” Mr Bros said.
Swiss commodity trader Trafigura is planning to reopen an LNG import terminal in the north-east of England next year, which will give it greater access to the UK market.