The UK government is currently scouring the market for potential gas import deals as part of a new supply security push, while the recent collapse in the value of the pound is adding to the UK's LNG procurement costs.
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The UK relies on imported gas to meet around half of its demand, with Norway the top supplier, accounting for some two-thirds of the UK's imports last year, according to government data.
The UK also has three operational LNG import terminals, with LNG supplies making up the bulk of the remaining UK imports last year.
However, the UK is relatively exposed to the spot market for additional LNG purchases so the government is now looking at the potential for new long-term supply deals.
"We are talking to the market to understand what commercial deals are available," a spokesperson at the UK Department for Business, Energy and Industrial Strategy (BEIS) told S&P Global Commodity Insights Sept. 23.
"A new energy supply taskforce has begun negotiations with domestic and international suppliers to agree long-term contracts that reduce the price they charge for energy and increase security of supply," the spokesperson said.
Spot gas prices across Europe have hit record highs in recent months, while spot LNG prices also remain at sustained highs.
Platts, part of S&P Global Commodity Insights, assessed the Dutch TTF month-ahead price at an all-time high of Eur319.98/MWh on Aug. 26. It was last assessed on Sept. 23 at Eur179.20/MWh, still 155% higher year on year.
Meanwhile, the Platts benchmark JKM spot LNG price for delivery into northeast Asia also remains high and was assessed Sept. 23 at $38.21/MMBtu, up by 45% compared with a year ago.
The US has been the main supplier of LNG to the UK in 2022, with deliveries equating to 7.1 Bcm in the first eight months, followed by Qatar (6.4 Bcm), according to data from S&P Global.
The US is also front and center of UK efforts to lock in new long-term LNG supply deals.
According to market sources, a number of major US LNG exporters, including Cheniere and Freeport LNG, have been contacted about submitting proposals.
The sources said the UK government was casting a wide net in search of long-term supplies.
The UK has also been courting Qatar in recent months in a bid for more long-term LNG.
Qatari energy minister Saad al-Kaabi is due to visit London in early October and is expected to hold talks with BEIS on LNG deliveries. A BEIS spokesperson said any meeting would be announced in due time.
UK utility Centrica, meanwhile, has been relatively active in recent months in looking for long-term gas deliveries.
In June, it agreed to take an additional 1 Bcm/year of gas from Norway's Equinor, bringing the total contracted volume to be supplied by Equinor to Centrica to 10 Bcm/year.
Equinor said it typically supplied a total of some 20-22 Bcm/year of gas to the UK, enough to cover more than 25% of UK gas demand.
In August, Centrica also signed a heads of agreement for the purchase of 1 million mt/year of US LNG from Delfin Midstream's planned floating LNG export project off the coast of Louisiana.
The contract -- if finalized -- would be for 15 years on a FOB basis and come into effect in 2026 when the facility begins operations.
Pound vs dollar
In the meantime, the recent collapse in the value of the pound against the dollar is adding to UK LNG procurement costs.
LNG cargoes are mainly traded in dollars, and the recent spot price strength has seen individual cargoes change hands for $200 million or more.
The pound fell to a record low below $1.04 in early trade Sept. 26 on concerns over the UK's fiscal position following the announcement of huge tax cuts by the new government. A year ago, the pound was worth $1.38.
For LNG buyers in the UK, the weakening pound is making spot LNG purchases significantly more expensive.
A $200 million cargo a year ago would have cost a UK buyer around GBP145 million, whereas the same cargo would be valued at GBP192 million in today's money.
The euro has also weakened against the dollar in recent months, though trading sources said this was not impacting prompt cargo activity in northwest Europe.
A European LNG broker, however, said it could become an issue if the dollar continued to strengthen.