LNG Cheaper than Ever

As my two regular readers will remember, I earlier predicted that natural gas prices will fall, and fall they have.  

Merrill Lynch energy analyst Francisco Blanch wrote: "Only 12 months ago LNG demand seemed insatiable, with Asian and European consumers soaking up any available spot cargoes. As the market overheated last summer, spot LNG prices hit record highs of $25/MMBtu. Since then, the LNG market has tumbled, with spot prices in Asia now trading in a $3.80-5.00/MMBtu range."   Blanch forecasts LNG prices dropping further, to $0.70 per million Btu.  

The LNG market consists of two segments: long-term contracts, and the spot market.  The spot market has the volatile swings in pricing.  As new LNG plants begin operation, more and more product is available for consumption, thus driving down prices under classic supply/demand theory.  

This is good news for utilities that burn natural gas, such as those in California.  It is not such good news for natural gas companies and independent gas producers.  There are sufficient LNG import terminals in the U.S. to provide competition to domestic producers.   

It is even better news for drivers who own CNG vehicles, as their costs per mile will decrease.  This will perhaps spur car companies to make and sell more CNG vehicles, and that will help decrease gasoline consumption and prices.  However, the effect of lower gasoline prices will be a reduced incentive for car buyers to purchase hybrids, with their added costs for the hybrid system.  The net result is oil prices will also remain relatively low.  

What effect will this have on major car manufacturers, who have apparently committed to building hybrid cars?   Once again, they will be shown to have made the wrong moves.  On the other hand, CNG conversion of existing cars may see a revival.   Now, at least, the car companies can share the blame with Obama's omniscient government.  "You told us to make hybrids, so we did.  We should have made CNG cars, but you would not allow it."

For European countries, more imports of LNG will provide a welcome alternative to pipeline supplies from Russia.  As an example, the U.K. very recently received its first cargo of LNG from Qatar into the South Hook LNG receiving terminal in Milford Haven, Wales. 

Roger E. Sowell, Esq.