It’s finally time for the U.S. to enter the global natural gas market.
The first LNG export terminal will be cooling supply by the end of the year and sending it out by January.
Don’t get me wrong, this is fantastic news… but there is a little matter of a supply glut that can’t be forgotten.
If the market already has plenty of natural gas and LNG to go around, where will the new U.S. supply go?
First, you should understand that in the beginning, most of these exports will be under long-term contracts. Some of those contracts are already set.
However, shorter term transactions may eventually become the norm, given that spot prices are likely to be the more affordable option.
For instance, Australia is already in prime position to send supplies to Asia, covering China’s demand even as its growth slumps.
This means that both Qatar and the U.S. will most likely be competing directly for business in Europe.
Luckily, according to Energy Aspects head of natural gas and coal research Trevor Sikorski, Europe has the re-liquefaction capacity and the growing natural gas demand to take much of this excess supply.
You see, Europe’s move away from coal into cleaner energies is going much more smoothly than much of the coal-centric world, India and China especially.
This means that several countries in Europe could easily switch from coal to natural gas as a major fuel source.
And when spot-pricing becomes the name of the game, it will be more likely that those new LNG supplies will go to the places where it will best replace coal.
And that won’t just be Europe, either. With the U.S. as the swing natural gas and LNG supplier on the global markets, it’s likely, says Sikorski, that Henry Hub will become the global standard, or that international prices will be nearer a convergence point once U.S. supplies start going out.
That means LNG prices all over the world will be more affordable, possibly making it more competitively priced than coal.
After all, natural gas has already become the majority energy source for Japan, and has surpassed coal twice in 2015 for U.S. majority. Now it stands to do the same on a global scale.
U.S. LNG exports are coming on fast, and market adjustments will be made accordingly.
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Until next time,
A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
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