Monday, May 23, 2011

An Opportunity for Liquefied Natural Gas?

There has been a divergence of natural gas price between the United States and the rest of the world, especially Europe and Asia. Natural gas price of the United States is at about 30% discount of that of Europe and Asia.

From the US Energy Information Administration (EIA),
Two important spot prices for natural gas are the Henry Hub in the United States and the National Balancing Point (NBP) in the United Kingdom. The difference between NBP and Henry Hub spot prices has increased significantly since early 2010. Relative prices in these two locations can be important to spot suppliers of liquefied natural gas (LNG) who are able to select cargo delivery destinations in order to maximize returns.

Reasons for the change in relative prices include: increasing production and expanding natural gas storage volumes in the United States (driven by shale gas developments), a stronger price linkage in Europe between rising crude oil and natural gas, high European demand which reduced European natural gas storage inventories this winter, and supply uncertainty associated with the diversion of LNG cargoes from Europe to Japan to help offset the loss of nuclear power generating capacity following the earthquake and tsunami. Japan is the world's leading consumer of LNG. [Click on the image for a larger view]

Things may change. US natural gas companies may be able to sell to much higher prices in all trading countries following the US Energy Department's decision to allow Cheniere Energy Partners (LNG) to
export up to 803 billion cubic feet of gas a year from its Sabine Pass LNG terminal in Louisiana. The gas will be carried on tankers after being chilled to super-low temperatures to become liquefied natural gas, which makes it easier to transport by ship.The Energy Department said this is the first time an exporter has been allowed to send natural gas from the lower 48 states as liquefied natural gas, or LNG, to all U.S. trading partners. Some believe that this decision paves the way for more approvals of exports. Southern Union (SUG) and BG group are applying for an approval to export from Lake Charles Terminal.

LNG's and its subsidiary, Cheniere Energy Inc (CQP)'s shares soared on this news. SUG's shares also surge on hopes that it may get its approval soon.

Disclaimer: This blog is for general information purpose only. Stocks/financial instruments mentioned in this blog are not to be taken as investment advice/recommendation. Readers must consult their own financial advisors and/or consider their own risk/reward profile before making investment/trading decisions. The blog author is not liable for any investment/trading decisions of readers should readers decide to base the decisions on information provided by the blog.

Disclosure: The blog author does not own any positions in the above stock in her personal account as of May 23, 2011.

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