Monday, February 9, 2009

LNG and Impact on Natural Gas Price

There was an interesting article in the Wall Street Journal today about how poorly the liquefied natural gas (LNG) importing business has fared over the past few years. The expectation that the U.S. would become a major importer of LNG via coastal ports has not come to pass. One of the main reasons has been the increase in price in natural gas beginning in 2002, which has had the effect of making unconventional gas plays and horizontal drilling economically viable. The impact of shale plays like Barnett and Haynesville to U.S. supplies has been huge and has virtually killed the LNG import business (coupled, of course with the recent economic slowdown). The article mentioned one new LNG port that has only serviced three tankers in the ten months it has been open.

LNG is a big business for Europe and Asia, which don't have significant production of their own and pay higher prices for natural gas. The bad news is that after the LNG suppliers sell to Europe and Asia they dump the remaining product in the U.S. because of the oversupply of storage capacity resulting from the construction of the new LNG facilities. One analyst referred to the U.S. as the "market of last resort" for LNG sellers. Given our current recession and the decreased use of natural gas for industrial uses, the increased supply is likely to cause further pressure to suppress natural gas prices.

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