Monday, February 02, 2009

Natural Gas Glut Could Hit U.S., Prices Are Already at A 7-Year Low, Lowest Since December 2002

HOUSTON CHRONICLE -- As many as seven massive natural gas export terminals are expected to start up overseas this year, expanding worldwide capacity by 20% and flooding markets with new supplies of the key power plant and heating fuel. Dozens of new tankers capable of carrying natural gas in a liquefied form are slated to hit the seas. Just as these new supplies come on line, worldwide demand is expected to drop as the global recession deepens.

Operators of these new facilities are unlikely to cut back production, however, so shipments of liquefied natural gas will most likely head to the deepest markets with the greatest amount of natural gas storage capacity — the United States.

While LNG generally is sold in contracts between importers and exporters, its price is influenced by the price of natural gas traded on the New York Mercantile exchange, which closed Friday at 7-year low of $4.42 per million Btu (see chart above, data here).

10 Comments:

At 2/02/2009 6:18 PM, Blogger misterjosh said...

Are these prices "real?"

 
At 2/02/2009 6:59 PM, Blogger Mark J. Perry said...

No, the prices in the graph are nominal, i.e. NOT adjusted for inflation.

 
At 2/02/2009 10:35 PM, Blogger CJ said...

I was under the impression that natural gas markets were largely regionally focused due to the significant transportation cost relative to the price to pull it out of the ground. At it's cheapest, it costs us something like $4 per million Btu to get to in the Gulf region. How can it be brought in for a profit from outside given the cost to ship that will be added on?

 
At 2/03/2009 11:06 AM, Blogger David said...

Aren't LNG imports still constrained by terminal capacity on the US side? Doesn't matter how many export faciities are build elsewhere if there's not sufficient capacity to unload the tankers on this end.

Also, the hostility toward coal plants means, in practice, that most new electrical generating capacity will be in the form of gas-fired plants.

I doubt we'll see a massive shift to nat-gas automobiles anytime soon, but there do seem to be an awful lot of buses running on gas, and it also probably makes sense for some local delivery vehicles.

 
At 2/03/2009 1:09 PM, Blogger Bloggin' Brewskie said...

David,

The U.S. has a glut of LNG import capacity (see here and here). Years ago, many intellectuals believed America’s natural gas production would eventually hit an irreversible decline, and urged the construction of import terminals. However, America has recently experienced a generous boost in domestic production (largely due to shale gas), and has had little need to import gas from overseas.

With much of the world economic players stymied on the IR, with a glut of LNG gas export terminals coming on line - and investors wanting to recoup from their commitments - the U.S. is in the only big boy in town with the appetite and the storage capacity to absorb the excess gas.

 
At 2/03/2009 5:02 PM, Blogger longnshortofit said...

Brewskie said "America has recently experienced a generous boost in domestic production (largely due to shale gas), and has had little need to import gas from overseas."

I think that too. Chesapeake and others are poking holes in shale and building piplelines to connect. So why is FERC approving gas terminals in Baltimore and long pipelines in a heavily populated area and then getting the gas from S America?

Stupid is as stupid does.

 
At 2/05/2009 3:47 PM, Blogger VangelV said...

At the current price levels shale does not make sense and neither does deep water Gulf of Mexico development. Given the rapid depletion rates of existing fields, the price declines mean that American domestic production is about to fall off a cliff. Yes, prices could collapse but only if there is a major depression that takes place in an environment in which the USD retains its purchasing power.

 
At 2/23/2009 2:17 PM, Anonymous Stu said...

I am baffled by the following story of LNG delivery to China by the Malaysians. $22mmBtu???

http://bloomberg.com/apps/news?pid=20602099&sid=a9M84kzs0eCs&refer=energy

 
At 12/17/2009 2:40 PM, Anonymous Anonymous said...

I have read that since the US started producing Shale gas, they no longer needed to import gas from the overseas. But is it due to the cut down of imports that there is a downward pressure in price and a glut?. It would be great if someone can help me.

 
At 12/18/2009 11:18 AM, Blogger VangelV said...

I have read that since the US started producing Shale gas, they no longer needed to import gas from the overseas. But is it due to the cut down of imports that there is a downward pressure in price and a glut?. It would be great if someone can help me.

What you have is demand destruction and a mild summer causing a huge build of inventories. While shale gas may add to supply over the long term it can't do it at the current low prices unless drilling and production costs fall much further. The problems for shale production come from massive depletion rates, possible damage to water sources, and costs that will rise sharply if demand in the services sector picks up. Prudence would suggest that one only look to companies that have diversified reserves and do not need to rely on shale at times when costs are low.

And keep in mind that if we get a very cold winter we could see a price explosion. With drill rig counts being low and E&P budgets having been cut there is no way to satisfy a demand spike from the supply end.

 

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