UK GAS MARKET: HOW LOW WILL PRICES GO?
Oversupply in the UK gas market has shifted the supply-demand balance. Whereas in the past few winters, market watchers focused on how high prices could go, now the attention is on how low they will fall. CERA has explored the determinants of summer 2007 prices and how the market will find a new equilibrium.
*Although potential UK supply is far in excess of market demand, the new supply is flexible.
*Diversion of liquefied natural gas into alternate markets will not be sufficient to bring supply and demand into balance.
*Prices could fall to low levels just above full-cost production levels and test the Norwegian producers' willingness to continue to sell gas into the UK at these low levels.
