The fossil fuel market is lower than ever. After the U.S. used shale formations to pump record-breaking amounts of both oil and gas, values plummeted.
However, according to research and investing companies such as Bank of America Corp. (NYSE: BAC), Wood Mackenzie Ltd, and RBC Capital Markets LLC these cyclical price swings are expected to intensify as liquefied natural gas (LNG) begins to be exported from the United States to Europe and Asia.
Volatility-seeking traders will savor this shift, while consumers will be stung. The moderate retail gas prices will escalate with the LNG exports, as stated by Bloomberg New Energy Finance.
The first American export site will start running this year, when Cheniere Energy Inc. (NYSE: LNG) will launch its LNG terminal in Louisiana. This terminal has been approved to export 3.5 billion cubic feet of gas per day.
As reported by Bloomberg New Energy Finance analyst Charles Blanchard, American LNG export terminals will be shipping up to 8.5 billion cubic feet daily by the end of 2019.
With five other liquefaction plants opening this year alone, efforts are expected to advance quickly. The International Energy Agency anticipates that the United States will be the third-largest supplier of LNG by 2020.
These predictions are well supported by the January 2017 futures, currently trading at a premium of $0.372 for October 2016 contracts. For this time of year, it is the largest premium in nearly 3 years. Likewise, Francisco Blanch, the head of commodities research for Bank of America Corp., expressed that as LNG exports grow, the widening seasonal spread will extend to as much as $1.00.
The natural gas set for September delivery fell by almost 10 cents to its lowest in three weeks: $2.768 per million British thermal units on the New York Mercantile Exchange. These seasonal changes in prices have already allowed the volume of futures in June to rise to the highest amount for that monnth since 2012: a whopping 7.71 million contracts.
Such high demand leads to higher prices. It is usual for home gas bills to be bigger in winter; however, between February 2013 and February 2014, there was a 17% increase for New York City residential gas bills. And with this heightened demand, drilling in different areas is necessary—and costly. This will raise drilling prices by around 35 cents and retail prices 5-10%.
As LNG exports are estimated to sky-rocket and the domestic demand for gas increases, it is clear that U.S. gas prices are ready for recovery
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