Steadying prices this week is the news that capacity is currently exceeding demand in the UK, with coal-fired generation at the forefront of output and reaching almost 50% of total UK power generation following a long-term average of about 44% of total UK power, and news that the UK-France interconnector has been exporting this week for the first time this year following consistent imports. Although the cold weather is expected to continue for another ten days or so, outside temperatures have so far been slightly above the January average which points to a positive outlook.

Still just newspaper talk at the moment - as evidenced by no new revelations at the start of this week - the touted hostile closure of the Strait of Hormuz is still a hot topic. In the unlikely event of Iran carrying out the threat, and disrupting middle-Eastern deliveries - most notably from Qatar - not only would the exports of Brent crude oil be affected, but so too would the circa 77 million tonnes of liquefied natural gas (LNG) per annum which is transported through the Strait of Hormuz from Qatar to destinations worldwide. This equates to approximately 30% of the global LNG market.  Qatar is the majority provider of LNG to the UK - 85% of our imports during 2011 coming from there - and the UK was the biggest recipient of Qatari LNG in 2011, followed by Japan with 11.7 million tonnes (compared to the UK's 16 million tonnes).  Worth considering is that Japan is expected to increase imports to some 80 million tonnes in 2012 in order to  continue their economic recovery following the tsunami of last year and the loss of vast amounts of nuclear power (38% of total capacity).

Any temporary closure to the Strait isn't likely to have a massive impact on markets, as many traders and brokers of LNG believe the threats to close the chokepoint are empty, largely owing to Iran's economy which is heavily reliant on crude oil exports, and that the US Navy (at least) would intervene to ensure as little disruption as possible occurs, and the markets have acted according to these beliefs with prices holding steady and even following a long-term gradual slide in prices. Supply capacity across the UK is currently very healthy so no knee-jerk reactions in the markets are expected.

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