Thursday, December 3, 2009

Gas the New Baseline Power Fuel in Britain This Winter

Reuters UK has a good article on how the high natural gas supply is changing the power generation landscape in Britain this winter.  Utility Centrica is running its gas powered generating plants full tilt this winter to take advantage of the surplus of low priced natural gas in the U.K.  Normally winter sees gas prices spike as gas is used to heat homes.  Coal then becomes the baseline power generation fuel of choice because it is cheaper.  Not this winter.  Because of the influx of LNG to the spot market, the gas price spike is not expected to hit and gas turbines become moneymakers in the cold months. 

The article is a good read because it provides more insight on the global gas market and the tight spot LNG providers find themselves.  Demand for natural gas has slacked because of the global recession at the same time supply from nations like Qatar has increased.  Non-contracted gas is still being loaded onto ships and is looking for a home.  Because European continental users are tied to pipeline supply deals with nations like Russia, they can't absorb excess spot market gas supply (although they would like to because the pipeline contracts carry oil-indexed prices).  The U.S. is not an attractive destination because of its oversupply/low price situation.  The next best option is the U.K., which has one of the better gas spot markets in the world.  Storage there is filling up and opportunities abound to use the cheap gas.

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