HH-NBP Convergence Underpins Fragile Gas Export Economics
BMI View: The convergence of Henry Hub and National Balancing Point (NBP) gas prices underscores the changeable and volatile economics of exporting US liquefied natural gas (LNG) to Europe. We already forecast that prices will converge towards the end of our forecast period based on increased domestic demand for US gas, but the fact that benchmark prices are currently heading for parity (based on weather-related phenomena) highlights the economic fragility of such plans while the natural gas market is in a state of flux.
Although National Balancing Point (NBP) gas prices are likely to rise once the summer in Europe has come to an end, the current pricing dynamics will be of interest to US liquefied natural gas (LNG) exporters and European utilities. With an unseasonably warm winter in Europe meaning large volumes of gas have remained in storage, and demand for gas currently subdued moving into the summer months, NBP prices have declined rapidly since the start of 2014.
In early June, NBP was priced at USD6.1/mn British Thermal Units (BTU). While we reiterate that we expect NBP prices to rise towards the end of 2014, we believe there are two implications.
Prices Converging, For Now Henry Hub And National Balancing Point Gas Prices (USD/mn BTU)