--> Abstract: LNG, Pipeline Expansions, and the Coming Effects from Energy Markets and Basis, by Ed Kelly; #90078 (2008)
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LNG, Pipeline Expansions, and the Coming Previous HitEffectsNext Hit from Energy Markets and Basis

Ed Kelly
Wood Mackenzie, Houston, TX

The price of natural gas faced by producers and buyers in the wholesale market will be increasingly influenced by $10s of billions in investment occurring in pipelines, storage, and international LNG. These influences will change gas price relationships to oil, and will shift basis relationships across North America. Notwithstanding mid-2007 weakness in NG prices relative to oil—partly enabled by increased LNG imports—LNG will, over time, strengthen that relationship. Oil-based contracts in competing European and Asian markets for LNG will attract cargos from the US should US prices fall too Previous HitfarNext Hit for too long relative to oil, and conversely, will add to cargos available to the US should US prices rise relative to oil. While small now, over the next decade this effect will build, to offset the ongoing decline in real fuel switching capability in US end use markets. The net result is a new and building shorter-term Previous HitsourceNext Hit of supply elasticity in US and Canadian gas markets. On the infrastructure side, Rockies Express, and even more so the 6+ Bcfd per day of pipeline capacity being added from East Texas and the Midcontinent shale plays toward the east, will drive a broad convergence in basis across the mid-section of the US. The decline in Canadian supplies available for export, already in evidence, will cause pockets of premium prices to emerge in the upper Midwest and the West Coast. In the East, LNG and regional pipeline/storage enhancements will enable relative basis stability, but the potential for demand-based basis volatility is growing as power generation increases its share of the overall load, and as core customer counts continue to increase. LNG supply variability, though predictable on a monthly and even (to a lesser extent) seasonal basis, will only add to the uncertainty. LNG, Pipeline Expansions, and the Coming Previous HitEffectsTop on Energy Markets and Basis

 

AAPG Search and Discover Article #90078©2008 AAPG Annual Convention, San Antonio, Texas