LNG glut driving a UK baseload power shift

A big increase in LNG imports to the UK, thanks to two new terminals, is not only raising the spectre of trans-Atlantic arbitrage - it’s also seeing natural gas become the baseload fuel of choice in the once coal-dominated market.

Reuters reports that UK power generators are not anticipating the usual squeeze on gas prices this winter, so much so that Centrica, the biggest electricity provider, plans to run all its gas-fired plants at capacity, rather than focusing on coal for winter baseload supply:

“As gas prices have fallen we have switched all our gas fired power plants on, which we weren’t expecting to do this time last year or certainly two years ago, which is one of the methods we have of dealing with all the LNG that arrives in the UK,” Simon Bonini, director of LNG at Britain’s biggest residential gas supplier told the CWC World LNG Summit in Barcelona.

“Instead of coal being the baseload supplier of power in the UK it’s actually gas right now.”

According to energy consultants Inenco, day-ahead prices were trading as low as 25p per therm on Wednesday –  a price the market would usually expect to see in summer months not December.

The proportion of UK power coming from gas has been steadily rising for almost two decades, but other thermal sources – almost entirely made up of coal – have tended to maintain the upper hand:

Energy Information Agency

Source: Energy Information Agency

H/T  No Hot Air, who points out that shale gas is also pushing LNG prices lower.

Related links:

Looking on the bright side of the LNG glut (FT Energy Source, 22/04/09)

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