Earlier in the year, I wrote a post about the sideways movement in US natural gas and crude oil prices, called ‘Keep Calm And Carry On’. Well, now seems an opportune time to flip the coin, as we are seeing UK natural gas prices panic and freak out.

But let’s take a deep breath and count to ten, then look at the bearish side of the equation.  

UK Storage levels, 2006 - 2010

And relax. Yes – demand is high, yes - storage is being depleted. But the bigger picture for the UK is that supply is strong. LNG deliveries continue apace (now making up approx. 17% of supply), and this theme should continue as Qatar – the world’s largest exporter of LNG – is bringing further supply to market (and could keep doing so). Norway is also providing reliable imports (approx. 20% of supply). And finally, the cherry on top: US natural gas prices. As the below chart illustrates, there is no way the US is going to attract LNG cargoes at $4/MMbtu, when current pricing in the UK is well over double that. 

UK nat gas prompt month (blue) vs US (yellow), $/MMbtu: Aug 09 - present

Considering UK natural gas prices are historically highly volatile, it should come as no surprise that the market is freaking out, as bitterly cold conditions and high demand are spreading panic early in this winter season. But given the overall market fundamentals, there seems little reason to jump into the market at such great heights – after all, prices have been unable to hold above 60p/th despite all the bullish hubris. Yet if in doubt, the market should always reflect back to the British idiom of keeping a stiff upper lip, and remember to always keep calm and carry on.