LNG Exports – Massive Increase Planned
What has US Natural Gas, Liquid Natural Gas (LNG Exports) and London have in common? Ninety years ago today, the first successful radio-telephone conversations took place between New York and London thanks to the American Telephone and Telegraph Company (AT&T), Radio Corporation of America and Britain’s General Post Office (GPO). Since then the pace of change in telephony and technology has been incredible, enabling global trade and communication to be carried out instantly from pretty much anywhere.
Today it’s the global trade in oil which has the phone lines buzzing though, as traders shift their bearish positions to more bullish ones in the face of production reductions and freezes during talks aimed at taking the oversupply out of the market. Oil at $20 seems a long way off as the markets trade at around double that number, however, just how far the bullish run will go remains to be seen with Cushing, Rotterdam and Singapore oil ports all at record high levels.
Add to that the fact that, as oil prices start to increase, producers who have stopped the US donkey’s nodding (rig counts at record lows) will be quick to lock in the gains to begin production again. So it is quite an uptick in demand that will be required to help get the equation back in balance.
Natural gas remains low, very low – 17 year lows in fact. LNG exports through a network of terminals will monetize the enormous oversupply in a few years but are little way from complete as the chart from the EIA below demonstrates.
These new terminals are expected by 2020 to remove around 10Bcf from the market in LNG exports, which added to the increase in gas-fired generation and an improving economy, should see a considerable re-balancing of the supply-demand equation.
Large energy consumers who are currently basking in the warm weather of low energy prices are in danger of being caught out by this steady re-balancing, something which has happened more than once before – just watch the price creep.
The key thing to remember is that commercial energy consumers are a sink for energy, they are typically not producing, trading or speculating on its future direction. For this reason, they need to be diligent in managing their exposure and using more sophisticated tools to help them.
Vervantis provides proprietary risk management processes that make sure your eye is never off the ball by constantly measuring and managing energy price risk, and evaluating the best buying opportunities to keep prices low.