We see higher gas demand and supply volatility in the UK and a greater role in LNG smoothing out pipeline supply shortfalls
UK LNG imports are likely have grown by 39.6% year-on-year by 31 December, the latest data of our LNG Market Tracker shows. We currently expect December LNG imports in the region of 4 million m3. Although to a large extent this increase in LNG imports is due to ample supply from the United States at times when overall demand growth in Northeast Asia is slowing, there is also an underlying issue of falling European pipeline gas supplies and associated foreign supply volatility.
UK gas production expected to flatline this year
This change comes as domestic gas production is expected to have flatlined year-on-year in 2019, with future production projected to be set on a long-term decline trend as aging North Sea fields as well as associated pipeline infrastructure are gradually taken offline. The country’s gas production fell by 4.9% year-on-year for the period of January to September, the latest data by the UK Oil and Gas Authority (UK OGA) show.
UK pipeline gas imports under pressure, too
Meanwhile, UK gas imports via pipeline have been under considerable pressure since the beginning of 2018 as Norwegian gas production – almost all of which is exported – maintained a declining trend, too. As such, the country’s total gas production this year is expected to fall by c. 22% compared to 2018, data by the Norwegian Petroleum Directorate (NPD) show.
As similar picture transpires in terms of UK gas imports from Belgium and the Netherlands, data from the UK OGA show. Imports via the Zeebrugge-Bacton Interconnector were down 90.6% year-on-year for the period of January to September whilst the gas volumes through the Dutch Balgzand – Bacton pipeline had declined by 36.4%. This is in stark contrast to the years prior, when UK gas supply via pipeline from Belgium and the Netherlands had achieved growth of 20.7% and 44.9% in 2017/2018, respectively. The Netherlands in particular are struggling with declining output from the giant Groningen gas field, with smaller remaining undeveloped fields often not commercially viable.
Silver lining in remaining North Sea resource base…
Although the commissioning of Norway’s Johann Sverdrup oil field was completed successfully in October, and thus lifted Norway’s gas output, the UK’s gas supply via pipeline is likely to remain under pressure since the field is primarily focussed on oil production. CNOOC’s recent discovery at Glengorm in the Central North Sea also adds a silver lining with 250mboe in place, though the area’s high pressure/high temperature geology is likely to make development and eventual production costly and thereby uncertain.
…and UK demand in long-term decline, though demand spikes call for LNG as swing gas supply
Whilst we believe the UK’s long-term demand outlook is that of declining gas consumption – driven by reduced industrial consumption, particularly following the demise of UK steel production – we highlight that UK gas demand still has the capability of relatively swift increases, as was the case last year due to cold weather brought in by the ‘Beast of the East’. We therefore see considerable potential for sustained higher LNG imports vis-à-vis pipeline supply to smooth out volatility in both supply and demand.Previous:
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