Tuesday, December 1, 2009

Share the Wealth (or the Glut)

I’ve mentioned previously (also here) market forces and increased North American supply from shale gas have conspired to change the dynamics of the natural gas market in Europe. I noted a couple of interesting short articles at the Financial Times web site discussing the impact of increased supply on natgas prices in the U.K. (#1: original article; #2: follow-up piece) Increased shipments of LNG are starting to fill storage facilities in the U.K., driving down gas prices.

Because of shale gas, the U.S. is no longer an attractive destination for LNG. That’s not to say that it won’t continue to come. The economics for some of the LNG export facilities in places like Qatar are unbelievable, and they can make money selling it below the U.S. spot price. But it doesn’t make sense to do that if they can sell it for a little more in Europe and Asia.

It will be interesting to watch spot market prices in Europe and Asia as LNG starts to arrive in large, unexpected quantities. At what point will a worldwide supply glut be declared?

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