LNG Export Risks | Russell T. Rudy Energy LLC
“World Oil” reports that analysis by consulting group, Wood Mackenzie, indicates that U. S. LNG (liquefied natural gas) exports to Europe could be exposed to several risks over the next five years. Some of these are obvious and others less so.
An obvious risk is that Russia, in an attempt to preserve gas market share in Europe, could cut prices to the point that U. S. LNG is no longer economic. However, Wood Mackenzie found that other factors, such as the prices of U. S. domestic gas, world oil and European coal are all more probable threats.
Russia could flood the market in an attempt to preserve market share. However, this would mean selling more gas at a lower price. For a nation hard strapped for cash, this would not make sense. Also, any expansion of supply from Russia would require the tacit support of the Ukraine and the EU and this would be unlikely.
If, as some analysts predict, the U. S. is facing a future gas shortage, this could drive up the price of natural gas to the point that it was too expensive for LNG operators to process at a profit.
Russian gas contracts are indexed to the price of oil. Should oil prices rise, gas prices would as well. However, if oil prices fall, Russian gas is more attractive to European buyers than U. S. LNG.
Finally, gas and LNG compete with coal for power generation in Europe. Should European coal prices fall, LNG imports would be less attractive.
Wood Mackenzie concludes that these factors could result in utilization of LNG capacity in the U. S., varying over the next five years from 54-100%. The best thing that could happen for our exports of LNG would be for coal prices to rise or for domestic gas prices to stay low.
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/3/11/up-to-half-of-us-lng-at-risk-of-shut-in-over-next-five-years-wood-mac.
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