LNG Awakens Gas Market | Russell T. Rudy Energy LLC
There are many reasons why domestic natural gas prices have been sluggish. However, primary among them is the Marcellus shale which lies beneath Pennsylvania, Ohio, West Virginia and New York. Huge reserves, flexible production rates, and proximity to major markets have all helped the play to act as a damper on gas prices. Even seasonal demand, which peaks during the winter months, has only produced short-lived price spikes.
According to a recent article in “World Oil”, this is about to change. Given the long lead times and massive commitment of resources, Liquefied Natural Gas (LNG) export has never played a major part in the domestic gas market. Protracted approval processes, long lead times for equipment and construction, large capital outlays and adequate throughput rates and reserves have all hindered LNG development in the U. S.
In spite of the hurdles, Cheniere Energy Inc. will begin operating the first of six LNG processing units at its Sabine terminal in Louisiana by year-end. Total implementation will be staggered through 2018 and is expected to reach a throughput of 3.5 billion cubic feet of gas per day (bcfd). Sempra Energy, Freeport LNG Development LP, Energy Transfer, and Dominion Resources Inc. will all bring additional capacity on line from 2017 through 2019. By that time, Bloomberg New Energy Finance predicts LNG export facilities will be taking 8.5 bcfd out of the domestic gas market.
Consequently, many industry analysts predict an increased number of gas futures contracts, more volatility, and higher domestic natural gas prices. The prospect of LNG exports has already boosted trading. The number of gas futures contracts has already risen to 7.71 million transactions in June, the highest level in three years. Traders are seeing larger seasonal price spikes related to winter demand in the futures market as well.
It is also anticipated that connecting domestic supplies to the global market will result in wider price spreads here at home. Francisco Blanch with Bank of America observed, “Always and ever, more demand leads to higher prices. The question of whether LNG exports will lead to higher U. S. gas prices is a fairly easy one to answer.”
To read the article in its entirety, please go to http://www.worldoil.com/news/2015/7/30/gas-awakening-from-us-shale-slumber-as-lng-shipments-near .
