(EnergyAsia, June 20 2013, Thursday) — Natural gas prices at Henry Hub will experience “significant” price volatility when the US starts exporting liquefied natural gas, said New York City-based consultant PIRA Energy Group.
In a study, entitled “Liquefied Henry Hub: The Repercussions of North American LNG Exports at Home and Abroad,” PIRA predicts the volatility will grow as more export capacity is approved and built.
While much of the market’s attention is now on how a Henry Hub link might lead to lower gas prices abroad, PIRA said “an equal, if not greater, concern” should be placed on how global markets will affect US domestic gas pricing.
With US LNG exports forecast to crest at around nine billion cubic feet/day (bcf/d) or 91 billion cubic metres/year (bcm/y) by 2025, including eight bcf/d (81 bcm/y) from the Gulf, the call on domestic gas production will account for five percent to 15% of the total.
“Depending on the degree to which this new form of demand is indifferent to North American market developments, the Henry Hub price ramifications will be substantial, at least in the short-term,” said study author Mickey Kwong.
The PIRA study addresses the multitude of gas price drivers around the world that will influence Henry Hub pricing when US begins exporting LNG later this decade. The study examines issues ranging from Russian gas production and seasonal gas use in a storage-short Europe to Japanese nuclear policy and bearable gas prices in Asia that will have a direct impact on Henry Hub prices on a daily basis much the way issues in the Mideast or West Africa influence crude oil prices.
Price volatility for Henry Hub will also be influenced by LNG-related changes in the supply/demand balances within North America. The timing of new supply, combined with domestic gas demand growth from low Henry Hub prices and the stability of LNG production, add significant layers of complexity to the movement of Henry Hub prices.
Extended periods of time will emerge when North American LNG exports are “in the money” and “out of the money” in the global gas market context. Exactly how lifters of North American LNG react to these external market forces will work their way back into Henry Hub pricing.
“The changing dynamic in the market is that the fairly insular world of North American gas markets and Henry Hub pricing will be immediately exposed to supply, demand, inventory, and pricing issues in other parts of the world,” said Ira Joseph, executive director of PIRA’s Global Gas Group.
“These factors were previously insignificant or ignored entirely by North American gas trade.”