The difference in price between the UK's National Balancing Point and the US Henry Hub month-ahead natural gas contracts fell to a six-year low at the end of last week on the recent downturn in NBP pricing, an analysis of S&P Global Platts data showed.
The NBP month-ahead contract was assessed at 31.70 pence/therm ($4.100/MMBtu) last Friday compared with the Henry Hub equivalent which settled at $2.586/MMBtu, leaving the UK prompt wholesale gas price a mere $1.514/MMBtu higher than the US equivalent.
This represents the narrowest spread between two key global gas contracts priced in US dollars since late June 2010, after the prompt spread was close to $3/MMBtu at the beginning of the year and over $8/MMBtu towards the beginning of 2014.
With the NBP front-month contract having come under further heavy selling pressure in early Monday trade, dipping below 30 p/th, the basis spread between the UK and the US looks set to narrow further at the beginning of Week 33.
When priced in pence, the NBP/HH month-ahead spread closed at 11.704 p/th last Friday compared to the 10.778 p/th seen in early July 2014.
The narrower spread between the UK and US wholesale gas prices has been driven by factors on both sides of the Atlantic, with NBP contracts coming under heavy selling pressure from the injection outage at the Rough storage facility and Henry Hub contracts boosted by stagnant US gas production year on year and warm summer weather.
Price spreads between the two hubs will be keenly watched by market participants in the near future given the Henry Hub is used in pricing US LNG exports from Sabine Pass in the Gulf of Mexico, which recently brought its second LNG train online.
With Henry Hub prices expected to be largely flat over the coming years and NBP contracts due to rise in the long term, price spreads between the UK and the US are due to widen in the future, making US LNG more competitive.
On Friday last week, the NBP Gas Year 2016-17 contract was assessed at a $2.236/MMBtu premium to the Henry Hub equivalent, and the spread between the Gas Year 2018-19 contracts closed at $2.504/MMBtu.
