UK Wholesale Gas Price -40% By 2010 On New Supply:
In contrast, the report forecasts a tight winter ahead, but said the supply-demand position has eased around 10% compared with last year. "Although we predict that U.K. indigenous gas production will be lower this winter, this will be more than compensated for by increased availability from imported sources," said Graham Tyler, analyst at Wood Mackenzie. The report says that while the volume of gas imports via the existing Belgian and the new Netherlands interconnectors is "uncertain" there will be three entirely new sources of imported gas this winter to help ease the supply picture. Up to 16 million cubic meters of gas a day could flow through the Langeled pipeline from Norway, 11mcm a day through a shipboard liquefied natural gas project at Teesside, and around 13mcm a day of gas through the Isle of Grain LNG terminal. Wood Mackenzie forecasts that indigenous production could peak at 248mcm a day, which together with imported supplies would see a supply capacity of 490mcm a day, "just enough to meet peak demand this winter even if extreme winter conditions transpire". As with last winter, supply aside, the weather could be the defining factor in market pricing, the report said. "One of the main uncertainties for this winter would be an early sustained spell of extremely cold weather," Tyler said. "As indigenous production volumes are still ramping up to peak winter swing levels early on in the winter, a cold spell at this time could increase the call on seasonal storage volumes," he said. "This combination of events occurred last year, and a repeat of this may have consequences for security over the rest of this winter," Tyler added. The current U.K. gas supply squeeze is expected to dissolve as the second stage of the Langeled project and associated Ormen Lange gas field in Norway comes onstream and the South Hook and Dragon LNG terminals in Milford Haven become operational later in the decade. As supplies lift, so prices will fall, the report said. "We are likely to look back and regard gas prices as having peaked in the winter of 2005-2006," Gray said. A 40% wholesale price fall by 2010-2011 would lead to an annual reduction in the average household gas bill of GBP140, and an overall saving of GBP2.8 billion per annum to the retail sector," Gray concluded. 22.9.06