Another Record Cold Winter Could Mean Trouble for Natural Gas Prices in the Northeast
In parts I and II of this series we introduced some serious risks to Northeastern U.S. natural gas prices for this coming winter, including the lasting impact of the record cold 13’-‘14’ winter and an inadequate pipeline infrastructure to fulfill demand. To further complicate this problem, planned pipeline solutions are nowhere near completion and delays regarding public concern over new drilling techniques continue to stifle progress on much needed expansion.
In addition to the risk public concern and debate over fracking poses, there are several other political and macroeconomic risks threatening the natural gas market.
One risk is the threat of processing centers for LNG (liquid natural gas) adding export ability. LNG processing centers convert natural gas to a pressurized liquid state in which gas is cooled to -265F. LNG takes up 600 times less space than natural gas and is cheaper and easier to transport.
Currently the U.S. does not export natural gas, but with the ability to presell at attractive gas prices around the world, the threat looms large.
Diminishing Canadian Supply
Another risk, although not for the immediate future, is diminishing supply from eastern Canada. The main natural gas supply from Canada currently comes from the Deep Panuke offshore rig. Supply is strong and the rig has the capability to process gas right there. This will ease demand and take pressure off basis in the short term; however the mine has an estimated life cycle of only 7 years.
With maximum output of close to 300,000 dth/day, this is a significant resource that will need to be replaced to maintain stable natural gas prices in the Northeast.
May 21, 2014 Russia – China Deal
After 10 years of negotiations Russia and China reached a $400B deal earlier this year for Russia to supply China with natural gas for the next 30 years. While this is a major step for geo-politics, it has some pretty serious implications on the world natural gas market and Northeastern U.S. supply.
Russia is currently the main supplier of natural gas to Europe. However, with the sizable China deal, Russia will no longer be dependent on its exports to Europe, and can hold that over Europe’s head when it comes to geo-political conflict.
Should Russia embargo natural gas exports to Europe, this would put significant pressure on western supply, skyrocketing prices in the U.S. and around the world. With the current conflict between Russia and the Ukraine, this threat is becoming more and more relevant. Currently we are vastly underprepared for this type of change in the natural gas market which would lead to devastating price increases.
In part IV of this article we’ll build upon the issues and trends discussed in parts I, II, and III to elaborate on how weather and risks to the natural gas market will impact electricity costs in the Northeast.
How prepared is your business for the coming winter?If you are concerned about your energy costs, please contact Keith Laake at Cost Control Associates, 518-798-4437.
Joe Scicutella is an energy procurement analyst for Cost Control Associates. He helps his clients obtain energy supply at the optimal price. He keeps his thumb on the pulse of the energy marketplace by monitoring supply, providing insights, working with suppliers to obtain pricing and negotiate contracts. Joe currently manages more than $2.5 billion in total client annual spend and has saved his clients more than $2.8mm on costs since July 2019. Learn more.