The lack of commitment to liquefied natural gas (LNG) by the United States and Canada in the form of long-term contracts means the top half of North America is "flying standby" in the global gas market, write analysts at Barclays Capital.
While the U.S., Canada and the United Kingdom draw LNG tankers to their shores with price, when they can, the rest of the world, Europe and Asia most notably, put pen to paper and sign up for supplies. "Want to draw a laugh at a gathering of overseas LNG buyers? Ask them to depend on 'the market' rather than contracts to meet their needs,'" the Barclays analysts write.
Price alone will not attract LNG to U.S. shores, particularly not in a world where demand for gas in Asia and Europe is growing (see NGI, Oct. 22). But the U.S. will be wanting more LNG as gas demand from power generators continues to grow. "Power sector use of gas should add an average of 0.75 Bcf/d of gas demand each year in the rest of the decade ahead," the analysts write.
Mexico, it seems, has seen the writing on the side of the LNG tanker and has stepped up to term LNG contracts, the analysts note. Without long-term commitments from U.S. markets, LNG imports to the United States could fall to zero, depending upon global gas market circumstances, the analysts say. "The point is clear: the U.S. and Canada do not have control over LNG flows into their markets," the analysts write. "Just like flying standby, if you want a seat, you need a reservation."
These words should come as no surprise. Federal Energy Regulatory Chairman Joseph Kelliher called on U.S. markets to step up to long-term contracts to support LNG imports and infrastructure development (see NGI, Nov. 12). However, the Barclays analysts say U.S. and Canadian buyers should not rush out and contract for LNG for a number of reasons. Among them:
A few years ago energy companies were signing up for LNG supplies and looking for buyers, which made for a buyer's market, the analysts write. "This was a time when firm LNG could have been purchased in North America at U.S.-indexed, fixed, U.S.-like, and even index-minus prices. The aversion to long-term contracts, however, largely prevented the signing of these contracts. The tide has changed, and committing to LNG now means competing with global prices. Welcome to the sellers' market for LNG."
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