Ferguson's Forecast: LNG?How Will It Affect Gas Prices?

Editor's note: Energy Circuit takes no responsibility for the accuracy of this forecast. As forecast, the heating season has officially begun with the first withdrawal of gas from storage reported yesterday for the week ending November 11. With ample amounts of gas stored and oil prices falling, gas prices continued to soften, closing yesterday below $7/MMBtu for the first time since mid-October. A looming question is how increasing LNG imports will affect gas prices in the long term. A recent gas price forecast from R. W. Beck has prices falling to $4.30/MMBtu by 2008 and staying at that level indefinitely. I surmise that they assume that ample quantities of LNG will be imported into North America by 2008 and that LNG will set a market price of $4.30. Currently, LNG imports account for about 3 percent of consumption, and the U.S. Energy Information Administration projects this rising to 10 percent by 2010. If domestic production and consumption were to stay at current levels, the additional LNG would, indeed, drive prices down. Recent high prices have kept consumption from increasing but have not stopped U.S. production from dropping a few percent in the last several years. As LNG puts downward pressure on prices, domestic production will decline more rapidly, while consumption would be expected to increase?putting upward pressure on prices. The price at which upward and downward pressures will balance is not at all clear. It?s too early to claim that LNG will have solved all our gas problems by 2008. We don?t know how fast receiving terminals will be built, how much LNG will be available for import, and at what price, or how additional LNG will affect domestic production and consumption. We?ll have to wait until 2008 to see whether R. W. Beck was right.

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Ferguson’s Forecast: LNG?How Will It Affect Gas Prices?

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