In a steadily growing world natural gas market, U.S. buyers are losing out because of their unwillingness to sign long-term contracts for liquefied natural gas (LNG), while buyers in other importing nations are locking in capacity, FERC Chairman Joseph T. Kelliher said in opening the Commission’s “State of the Natural Gas Industry Conference” Tuesday.

The reality is that “North American gas production is inadequate to meet North American demand.” North America now is competing with Europe and Asia-Pacific nations for LNG imports, and “we are not predestined to prevail in that competition.” Meanwhile, “our success in that competition is vital to our energy security,” Kelliher said.

The United States has a number of advantages in the LNG market, including adequate import capacity on both the Atlantic and (soon) Pacific coasts, along with robust storage capacity, an unparalleled delivery infrastructure and market transparency. However, the international LNG market currently is more of a long-term market, as Middle Eastern and Russian developers of gasification projects and upstream supply facilities look for long-term contracts to attract investment. And they are finding them everywhere but in the United States, Kelliher said.

There’s not much the Federal Energy Regulatory Commission can do about the situation, Kelliher said, suggesting it was the job of state utility regulators to encourage local distribution companies to sign long-term purchase contracts. “I urge them to provide sufficient regulatory certainty.”

While some of the LNG trade that holds long-term contracts makes excess cargoes available to the spot market during slack times, those cargoes go to their contracted destinations during peak demand times and are unavailable to the United States as spot cargoes. There was some debate recently at a European gas conference as to whether the spot LNG market will grow as middlemen or marketers become involved (see Daily GPI, Oct. 22).

On another subject, Kelliher pointed to the convergence of the natural gas physical and futures markets. “These markets cannot properly be considered as separate markets since prices in one market affect prices in the other. It is important for the Commission to understand the implications of this convergence.”

FERC has gotten into a jurisdictional battle over this point in its prosecution of the case against failed hedge fund Amaranth Advisors LLC (see Daily GPI, Nov. 5). Amaranth had maintained that since the suspect transactions were in the futures market, jurisdiction belonged to the Commodity Futures Trading Commission and not to FERC. A federal court judge, however, recently denied Amaranth’s plea to bar FERC action in the case.

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