Shale Revolutionizes LNG Market | Russell T. Rudy Energy LLC
While the oil related impacts of the shale revolution are profound and well documented, the effect of shale gas on energy markets has been relatively modest. When there have been spikes in demand for natural gas, shale volumes have entered the market pre-empting or mitigating any price increases. However, a recent article in “World Oil” contends that shale gas is about to transform the markets for both international LNG (gas that has been compressed and cooled to the point that it becomes a liquid), as well as domestic natural gas.
Since Algeria sold the first cargo of LNG to the U.K. back in 1964, the market has been based on long term (typically 20 year) contracts. The U. S. Department of Energy has now approved 5 major LNG export projects which will catapult us into 3’rd place among LNG exporters by 2020. Only Qatar and Australia will produce more.
This would give the U. S. approximately 20% of the world market. This massive infusion of supply will result in a more liquid and dynamic market with short term and spot sales (defined as those with terms of 4 years or less) replacing many long term contracts. In 2006 only 16% of LNG transactions were short term or spot sales. However, by 2020 this is expected to increase to 45%.
With so much shale gas being converted to LNG and sold internationally, the price of domestic natural gas could also be expected to start approaching global levels. Currently gas prices in the U. S. are about $3 or less per MMBTU (Million British Thermal Units). Worldwide the price is approximately $7. Apparently the effects of the shale revolution will be transformative for LNG and natural gas markets as well.
To read the article in its entirety, please go to http://www.worldoil.com/news/2015/5/19/shale-set-to-pummel-another-market-as-us-lng-plants-arrive .
