When prices hit $10 last winter, that brought numerous plans out of the woodwork for new liquefied natural gas receiving terminals. Those proposed terminals in the Bahamas, Louisiana and in Texas along with the recommissioning and expansion of existing terminals along the East Coast will have a significant impact on basis and gas prices going forward, Ben Schlesinger, president of Schlesinger and Associates, said at GasMart/Power in Reno.

Many industry observers over the past year have wondered if lower gas prices might cause the numerous LNG plans to be shelved, but Schlesinger says the perfect storm of events that led to $10 gas last winter may recur. If they line up correctly again this year and next, price spikes might return.

“If drilling causes another so-called shortage at the same time the economy resurges, and at the same time gas demand picks up, new power plants come on line and you have the same scenario we had a year ago,” said Schlesinger. “With reduced investment in energy, comes increased price volatility. If the pipelines don’t put enough money and steel in the ground, that’s going to catch up with us in a year or two. The rig count, after having been high up there at non-historic levels, has come back down to less than 1,000… What we’ve got is a scenario in which gas prices might just run right back up to $4.50 or even more in another year or more.

“If this so called perfect storm misses with the various components not occurring at the same time, it might not happen,” he said, “but gas prices still will continue to rise.”

LNG plans are still viable and if LNG is coming in all up and down the East Coast, Schlesinger believes the United States could end up with a situation not unlike what occurred in Japan where gas is worth exactly the same amount at all the receiving terminals.

“There’s a potential that basis could flatten along the East Coast,” he said. “That may be an overstatement and a simplified formula here, but I think that it gives us a sense of direction for basis going forward.”

Schlesinger noted that years ago the price of gas in Boston was calculated by adding Algonquin Pipeline’s tariff to the price of gas in New York. That’s no longer the case with Sable Island gas coming down from Atlantic Canada and an increase in LNG at Cabot’s (Tractebel) import terminal in Boston.

“Gas in Boston now trades at a discount to New York,” Schlesinger noted. “Boston no longer is the basis peak; Washington, DC is.” The wheels are set in motion for further changes in basis along the East Coast, he concluded.

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