With Natural Gas Supplies Having Slowed, LNG Exports Seen as Threat

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We have written before about the benefits the shale gas revolution is bringing to the US economy (particularly US manufacturing).

Also, we’ve looked at the potential threat that this competitive advantage could be jeopardized by widespread exports of that same low-priced natural gas, depleting the very excess that has caused prices to plunge below world levels.

Cold winter weather has already stimulated a sharp natural gas prices rise to over $4 per million British Thermal Units (BTUs), a 71% increase over a year ago, according to Gas Investing News.

Producers had already started pulling back on production after being deterred by the low prices, such that inventory was falling and some were beginning to doubt if the competitive advantage of low prices would continue for much longer.

New supplies have slowed – the number of rigs drilling for natural gas stood at 418, down 36 percent from a year earlier, according to Baker Hughes, quoted in the article. As one would expect, those low prices have stimulated demand from a number of industries.

Natural gas has begun to replace coal as a power source for electricity production and oil as a feeder stock for petrochemicals. Even hedge funds and other speculative investors have begun to buy long positions at what was rightly perceived as a low point in the price curve.

The cost advantage to the whole US economy is considerable, but for some consumers it is a global game changer. Some companies in Europe are paying US$ 8.50 per thousand cubic feet while the same gas is selling in Alberta for US$ 2.50.

Arguably, the most emotive threat to continued low gas prices comes from exports of LNG, where the profits of a few companies will be perceived as replacing the wider benefit to the US economy.

Continued in Part Two.

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