Do you remember the time when the natural gas outlook, especially on the supply side, was, let’s say … a bit less surprising than now? Natural gas was a truly local commodity with well-defined storage capacity, transportation system and proven reserves. Do you remember when major disruptions arose from pipeline damages of different kinds and you were watching hurricanes developing in Atlantic?

Those simple times are so long gone.

Even with the gas price volatility increasing so much over the last ten years, new developments are pushing the industry so much further from those seemingly unsure times, deeper and deeper into an unknown land. I almost could see the reflection of road signs leading to this land in the eyes of gas industry representatives at the LDC Gas Forum. Sad, very sad faces with a hint of loss and disappointment. At least from those who had grown accustomed to dominating the market…

If you are involved in building any type of projections for natural gas, you are probably facing the most uncertain times now yourself.  The outlook for natural gas markets has changed dramatically over the past several years; in parallel with the number of factors affecting it.

Do you remember when we were building all those LNG import terminals to resolve an imminent shortage of supply? Just a few years ago. Then the US declared that its shale gas deposits will bring the country to the forefront of world natural gas domination. And what makes things even more complicated is that the currently prevailing low gas pricing apparently fails to create any kind of a damper on constantly increasing gas production, which hit its highest level in forty years in 2010. We drill and drill, whether to satisfy conditions of the land leases or to grab a piece of a future pie.

Supported by a significant jump in improvement of drilling technologies, while a bit setback by regulatory controversy and some local communities’ resistance, shale gas is proclaimed a panacea for achieving energy independence. Logically, why not, the new LNG terminals and facilities are built for export to serve the needs of growing demand in China, India and the rest of gas-starved growing nations. Existing LNG import terminals are utilized less and even being expanded into exporting facilities (e.g.,  terminals in Sabine Pass, Louisiana, Quintana Island, Texas and Cove Point, Maryland).

What comes after this? Of course, an influx of announcements from other countries that they have discovered enormous shale deposits and that they will be the new kings of the hill … India, Ukraine…

Japan refuses to extend their LNG delivery contract with the Alaska-located Kenai terminal due to high costs of production. The 41 years of deliveries will cease in spring 2011. Now the exporting terminal is being covered over by the Alaskan ice…

A new parameter is in play now: FERC has just approved Sempra’s proposal to use its Cameron LNG facility in Louisiana for re-exporting, making it the third US facility of this type. Re-exporting terminals receive and store commodity, produced somewhere else besides US, to resell it later in other markets. Try to predict market movements when more of re-exporting facilities are developed.

Hmmm… Curb your concern about how to factor into the equation projections of increases in demand from natural gas-fired power generation supporting growing renewable power. Don’t you just want to know how the looming prospect of natural gas becoming a global commodity with constantly shifting supply expectations will affect your forecast?

Let us just speculate a bit about what sort of new data will emerge that analysts will have to take into consideration:

  • LNG spot prices will be as crucial as results of trades at Henry Hub
  • Introduced will be natural gas regional indices, like Brent and WTI for oil
  • A gas cartel, Organization of Gas Exporting Countries, contemplated by Russia, Iran and Qatar, will collude and conspire to offset an open market
  • Anything else?