US natural gas prices attract LNG cargo diversions

Thursday, 21 June 2007

The recent steady fall in the NYMEX by more than 10 percent up until today still leaves Europe as a dead zone in the small LNG spot market.

Any pessimism among those hoping to make money any time soon on LNG cargo diversions to Europe is likely to last well into 2008 if the latest forecasts are accurate.

It would be one-way traffic for LNG were the spot and arbitrage markets suffciently developed and if enough players had the necessary regasification capacity in the US.

For now, though, diverted cargoes to the US are the exception rather than the rule as most LNG is contracted. But more LNG is going west in the Atlantic Basin, as the latest LNG import figures show.

US LNG imports are expected to reach the equivalent of 790 billion cubic feet in 2007, which would be 35 percent above last year’s total,

The US Energy Information Administration said in its latest short-term outlook that it expects the Henry Hub spot price to average $7.96 per thousand cubic feet (Mcf) [about $7.78 per MMBtu) in 2007, which is a $1.02 per Mcf increase from the 2006 average.

The Henry Hub spot price is projected to climb to a winter peak of $9.45 per Mcf [$9.27 per MMBtu) in January 2008, and average $8.15 per Mcf [$7.97 per MMBtu) for all of 2008.

Although US natural gas demand this summer is expected to be close to what it was last summer, consumption for all of 2007 is expected to increase about 4 percent over 2006 levels as temperatures in the winter months of 2007 are expected to be significantly colder.

Growth in US natural gas consumption is expected to slow to 0.8 percent in 2008. Working gas in storage in the 400 or so facilities around the US increased to 2,344 Bcf, according to the latest data released on June 21, which is 18.4 percent above the five-year average inventory level for the time of year.

The supply situation is unlikely to push prices much lower while the market continues to scan the horizon for the first big one of the Atlantic hurricane season.

Up to 10 named hurricanes could appear this summer and by the low of averages several are expected to threaten the Gulf of Mexico, according to forecasters.