Technology and good old “American ingenuity” that have driven the shale gas boom are also prompting responses to a supply glut that make storage and eventual liquefied natural gas (LNG) exports more important than ever, according to Bryan Durkin, COO at CME Group, who addressed the opening session of the LDC Gas Forums mid-continent meeting in Chicago Monday.
Advancement in hydraulic fracturing (fracking) and other technologies driving shale gas development have affected not just the energy sector, but the wider U.S. economy, said Durkin, noting that domestically produced natural gas has grown from being 83% of the gas used in the nation in 2007 to 94% in 2011. By 2025, shale gas will represent about half of the natural gas produced in the United States, he said.
“With the current high level of U.S. production and anticipated 29% growth, storage levels will continue to be a major concern,” said Durkin. “Storage promises to be a significant factor in determining market prices.”
With current levels of gas in storage at 3.4 Tcf and the nation’s total storage capacity at 4.05 Tcf, Durkin said “we’re pushing the storage limits.” Until only relatively recently all-time highs for storage had never reached 3.4 Tcf, he said.
“The big question now is what do we do with the glut?” Durkin asked rhetorically. “How do we manage the welcome problem of excess supplies?”
Gas imports last year dropped to their lowest levels since 1992, so many people are now advocating U.S. LNG exports, and Durkin thinks market conditions and technology are “right for this to happen.” He thinks that sub-$3/MMBtu gas prices create “an opportunity [globally] for American energy.” Now that Cheniere’s Sabine Pass export project is under development, Durkin said the first U.S. LNG exports “could come as early as 2015.”
Another speaker at Monday’s LDC Forum, Jack Weixel, client services director with Bentek Energy, said exports could come in the first quarter of 2016 from as many as four U.S. export facilities that Bentek has handicapped as having the best chance of becoming realities — Sabine Pass; Cameron, LA; Freeport, TX; and Cove Point, MD.
Durkin said he is focused on fracking, storage and exports in the natural gas industry because each of them “has the ability to have an impact on both volatility and prices” in the energy markets.
“Historical market fundamentals still drive gas prices and volatility, but what is new is their influence may be less pronounced,” said Durkin, citing recent mild winter and severe summer weather patterns, both of which had relatively mild impacts on prices.
“A lot of this is good news for the gas industry.” However, more complexity in the gas business, combined with traditional weather impacts, adds to the potential for continued volatility longer term, he said.
This potential for more risk prompted CME to develop new trading products for hedging activities that anticipate the eventual creation of a U.S. LNG export market that take into consideration price spreads between Henry Hub and price points in Europe and Asia. Durkin said CME also is developing new products that anticipate increased regulation in the commodity trading space.
CME Group on Monday launched a broad suite of new natural gas and power contracts that will be listed as futures on CME Globex, the New York Mercantile Exchange (Nymex) trading floor and CME ClearPort, and will be available for trading on CME Direct, a platform offering side-by-side trading and straight-through processing and clearing of exchange-listed and OTC energy markets (see intelligencepress.com for full coverage).
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