How Low is the Floor? | Russell T. Rudy Energy LLC
European natural gas buyers have had access to Norwegian pipeline gas as well as LNG (liquefied natural gas) from Algeria and Qatar. However, the Europeans have always relied more heavily on pipeline gas imports from Russia than they would have liked. This dependence on Russia has made them susceptible to economic and geopolitical blackmail. Now the Europeans see U. S. LNG imports as a solution in terms of both volumes available as well as prices. Most U. S. LNG contracts are based on Henry Hub, Louisiana, prices which have proven relatively stable and low. However, Gary Hornby, in a recent article in “Oil Voice”, makes the case that while considering Henry Hub prices as a floor is valid, the floor might be higher in the future than European buyers think.
The U. S. produced less gas in 2016 than in the previous year. This had not happened since 2005. At the same time, demand for natural gas for power generation, pipeline sales to Mexico and LNG exports has increased. Weather has always played a major role in domestic demand. Recently, we have had relatively mild weather which has helped ease the pressure on supplies and prices, but that, of course, is subject to change.
Another factor that could drive domestic demand for natural gas higher is politics. Yes, Donald Trump’s policies will probably lead to greater natural gas production. On the other hand, however, his tendency to deregulate industry could lead to more industrial demand for natural gas. Also, if he removes subsidies for renewable energy as he has threatened, this could further increase demand for natural gas.
Domestic LNG capacity is scheduled to increase dramatically between now and the end of the decade. Currently, the only facility actually exporting LNG is Cheniere Energy’s Sabine Pass, Louisiana, plant. It is expected to add a third train later this year, and three more by 2020.
Additional facilities are expected to come on stream in the short to intermediate term at Cove Point (1 train later this year), Corpus Christi (2018), Cameron (3 trains in 2018), and Freeport (2 trains next year and a third in 2020).
Some industry observers contend that demand for natural gas would have outstripped supply even without LNG feedstocks coming into play. Hornby concludes that with so many factors influencing the domestic gas market, demand will be variable and “This variability cannot be controlled by government or suppliers, and given the tightening system balance, U. S. weather is set to become an important driver for the global gas price.”
To read the article in its entirety, please go to https://oilvoice.com/Opinion/4314/Why-a-tightening-US-natural-gas-system-could-put-the-squeeze-on-LNG?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+OilvoiceHeadlines+%28OilVoice+Headlines%29 .
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