Platts: Tight LNG could lead to higher gas prices in Europe: BofA Merrill

The tightening LNG market could lead to higher European forward gas prices as buyers in the region become more dependent on LNG to bridge falling domestic production, analysts at Bank of America Merrill Lynch said in a note published Thursday.

European gas supplies are likely to diminish further in 2012 and 2013, leaving Europe increasingly dependent on LNG to fill the supply gap, despite falling demand.

But with LNG cargoes being diverted to higher-paying markets in Asia, this could eventually translate into higher gas prices on the curve in Europe, Bank of America Merrill Lynch said.

In 2011, UK gas production fell by 10%, although this was partly due to weaker demand and extended maintenance. Bank of America Merrill Lynch, however, noted that gas production has been declining at an average rate of 8% annually over the past five years, adding that it is this trend which will force Europe to turn to LNG.   MORE