Despite increasing domestic gas production, "it will be hard for U.S. natural gas inventories to reach full levels by the end of the summer" if imports of liquefied natural gas (LNG) remain at record-low levels, Goldman Sachs energy analysts wrote in a research note last week.
"[T]he United States still needs to increase LNG imports and incentivize some fuel switching away from natural gas and towards residual fuel oil during injection season in order to bring natural gas inventories to full levels by the end of October. In order to do so, we maintain that Nymex natural gas prices need to rise further and close their gap with international gas prices and the oil complex in the coming months," the analysts wrote.
The Goldman analysts wrote that they are "skeptical" of a recent revision upward by the U.S. Department of Energy (DOE) in domestic gas production but conceded that "the overall growth trend seems stronger than we had anticipated." They noted that lower residential and power generation demand was more than offset by higher industrial demand, partly due to the weak U.S. dollar and pipeline exports to Mexico.
"We believe the main driver behind the recent increases in pipeline exports to Mexico has been declining Mexican production along with a rise in domestic consumption in the country," they wrote.
The recently built Costa Azul LNG regasification terminal on Mexico's Pacific coast is expected to offset some gas supply shortfalls, but the Goldman analysts noted that the terminal's main contracted supplies, from Sakhalin and Tangguh liquefaction projects, have been delayed until 2009 (see related story).
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