A FirstEnergy Capital analyst has spun the globe and found that there may not be enough liquefied natural gas (LNG) sloshing around world markets to make any more available to the United States in 2008 than came ashore in 2007. Diminished LNG expectations and Canadian gas export declines paint a bullish price picture, the firm said in a research note last week.
"Although the Canadian supply picture is something that we have been highlighting as a growing bullish price trend for more than a year, the LNG story in 2008 could be just that needed twist to open the gates for the price bulls," wrote analyst Martin King. "We see the potential for continued tightness in the global LNG markets in 2008 as being very real. The most difficult thing to figure out is whether this tightness will spill over into North America and generate a tighter market balance for natural gas, and sustained higher prices, than is currently projected."
Making the case for an LNG shortage, King pointed to a number of factors:
"The potential end result of less-than-expected U.S. LNG imports would be a tighter market picture in terms of filling natural gas storage during the 2008 injection season and higher sustained natural gas prices earlier than currently anticipated," King wrote, noting that LNG regasification terminals due to come on line in the United States this year "have little or no supply commitments for the balance of 2008."
FirstEnergy predicts that the United States will import about 2.9 Bcf/d of LNG on average over the course of 2008. This, combined with modest increases in U.S. demand, increasing domestic supply but tightening Canadian supply makes for soft gas prices during the first half of this year, followed by recovery in the second half and "sustained upside strength emerging" in the fourth quarter.
While a "huge potential" for LNG supply increases remains on the horizon for 2009, it won't be enough to stir the bears, Martin said. "Given our modest assumptions for U.S. demand and supply increases in 2009, and what will be a much lower Canadian supply profile by then, the U.S. will likely need a great deal more LNG to balance the market," King said.
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