AMA - Natural Gas Price Fluctuations
Today's question comes from Vishal in Ottawa. He writes:
"As you know I am long time listener and fan of your podcast. Earlier in previous episodes you have mentioned of the growing concern of price increase of natural gas due to various changing conditions. How do you perceive this in light of the information contained in this article in Forbes Magazine entitled Could U.S. Natural Gas Prices Crash?
Published on November 9. Do you still believe we will see the price increase?"
Vish, this is a great question.
My discussion of natural gas prices was within a context. The author of the article is taking a slightly different US centric view of supply and demand. Everything the author says is accurate from a US centric perspective. Prices will fluctuate in the short term based on supply and demand, and the size of the local inventories. As I’ve said, the local price for natural gas is a function of transportation. Natural gas is incredibly inconvenient to transport. Approximately 10% of the US production is being exported in LNG form through sea ports along the Gulf Coast, principally Corpus Cristy in Texas and Lake Charles, Louisiana.
Right now, the price differential between gas on the beach in Louisiana, versus gas on a ship destined for Spain or China is at an all-time high. We’re paying about $5.50 per mmbtu in the US for natural gas, and Spain is paying over $30 per mmbtu. The cost to transport the gas from Louisiana to Spain is about $1.50. So the profit margins for those in the LNG business are astronomical.
Host: Victor Menasce