Wednesday, December 2, 2009

Good Article on Gas Prices

I read a long but interesting article on natural gas prices on the Bloomberg web site.  The conclusion of the article is that gas will stick in the $4.00 to $5.50 range for the next year.  The LNG issue seems to be the big overhang in the market.  Interesting takeaways from the article:
  • The first big Qatari LNG tanker arrived on U.S. shores at Sabine Pass, LA on November 4.  Qatar is leasing space there while it's Golden Pass terminal in Texas is under construction.
  • Qatar's net gas extraction cost is about 15 cents per MMBtu (it makes most of its money through natural gas liquids).  It's liquefaction cost is about $2.83/MMBtu.  I don't think that cost includes shipping, but this implies that gas is loaded on the boat for about $3/MMBtu.  Not bad economics.
  • Qatar is highly dependent on spot market sales because of a poor strategic decision several years ago.  As gas commodity prices were rising and Qatar was making huge investments in natural gas extraction and liquefaction, it did not lock in forward sales contracts.  Instead it expected prices to keep rising.  Bad move (sounds like mortgage brokers and the U.S. housing market).  But that self-inflicted greed wound has caused collateral damage to producers in North America because now Qatar is dumping cheap gas into the spot market.
  • The Gas Exporting Countries Forum is meeting in Doha, Qatar next week.  It looks like the 11 member nations are working towards creating an international price-controlling body like OPEC.  They may not be very successful, however, especially now that gas has become more "democratized," with gas finds all over the globe.  They also won't be able to hold a gun to the head of the U.S. since we are self-sustaining where it comes to natural gas.  But I'm sure China and India are watching these developments closely.

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