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Why does the UK receive natural gas from the Amazon?

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Bloomberg are reporting that the UK received its first natural gas from a new supplier across the Atlantic: Peru.

The Gallina LNG tanker docked at the Isle of Grain terminal east of London on 4 March after taking advantage of an expansion of the Panama Canal that cut almost 4000 miles off its journey from South America. Its long trip is a reflection of shifting world demand for heating and power-plant fuel.

1. Where does Britain normally get its gas from?
The UK, the biggest gas consumer in Europe after Germany, relies on imports for about two-thirds of what it needs. Norwegian pipeline gas dominates Britain’s gas imports, followed by LNG. More than 90% of the LNG comes from Qatar, the biggest of the world’s 19 exporters of the fuel, with the rest from nations including Norway, Algeria and Trinidad & Tobago. Imports may become even more important for the UK, since domestic production in the North Sea is on the decline.

2. Where does Peru normally send its gas to?
The most convenient destination for Peruvian LNG is nearby Latin America. The biggest market has been Mexico, receiving 34 of the 71 tankers Peru loaded in 2016. European recipients of Peru’s supply have typically been Spain and France.

3. So why the new relationship?
The expansion of the Panama Canal allowing it to be used by standard LNG tankers since June means Peru’s shipping distance to Britain is now comparable to Qatar’s. Also, Peru LNG stopped shipments to Mexico in October. Its main offtaker, Royal Dutch Shell Plc, may be trying to get higher prices elsewhere.

4. So the UK is a more lucrative market for Peru?
It looks that way. Gas for next-month delivery rallied to the highest level in more than two years on 3 February on the UK’s National Balancing Point. That was three days before the Peruvian cargo was loaded. That price – about US$7.30 per million British thermal units – was competitive with the US$7.50 in northeast Asia at the time.

5. What’s ahead for LNG imports into Europe?
The Gallina’s is one of three cargoes the UK is set to receive in a three-day period, more than the nation in the whole of February. Starting from the second quarter, LNG imports into Europe are slated to increase about 60% from the previous year as new facilities globally start producing the fuel. LNG imports into the UK dropped 21% last year because higher prices in Asia diverted gas from the European market in the latter part of 2016, government data show. As Asian demand falls from highs during the winter, tankers are starting to head to Europe.

6. What about UK production?
The UK is looking to avoid increasing its reliance on foreign supplies by expanding onshore shale gas production, starting with the scheduled hydraulic fracturing of five wells this year. The results will be used to determine if further exploration is warranted. Protests have delayed the use of new technological developments in so-called fracking that can boost production.

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