Is the Era of Cheap Natural Gas Already Coming to an End?

Continued from Part One.

One such example is Britain’s Centrica (formerly state-owned and then privatized British Gas), which has just concluded a US$15 billion deal to take US LNG and export it to overseas markets (it should be said the license is pending, but the company is confident it will be granted).

The deal, outlined in the Telegraph, was touted as securing natural gas supplies for British consumers, but in reality Centrica is free to sell the gas anywhere and will probably ship it to Asian markets unless its UK customers are willing to pay a higher price.

The deal for Centrica to buy liquefied natural gas from Cheniere Energy’s facility in Louisiana will start in 2018 and run for 20 years.

Cheniere has four approved liquefaction trains under construction and the Centrica supply is said to be coming from a fifth train for which approval has been sought. The firm has also sold 2 million tons of supply to France’s Total energy group. The deal is said to be based on the price of natural gas at the Henry Hub delivery point in Louisiana plus a 15% premium to cover liquefaction and delivery for shipment.

Where From Here?

Expect the arguments to rise, along with the price.

Consumers are already making investments in the belief that prices will remain low, placing faith in the stickiness of natural gas price close to its source, but a combination of those same prices stimulating demand and exports will force prices to rise – and with them, those seeking political influence to stem the loss of supplies abroad.