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Wrong Time For This Natgas Project?

Some high-profile news last week from one of the most-watched corners of the petroleum world.

That's U.S. liquefied natural gas (LNG) exports. Where a new project has been given the go-ahead by federal regulators.

The ruling came from the Federal Energy Regulatory Commission (FERC). Who said that the Cove Point LNG export terminal on the Maryland coast can proceed, with "no significant impact" on the environment.

This brings Cove Point's developer Dominion Resources closer to construction of the project. The development has already received LNG shipping approvals from the U.S. Department of Energy. Setting up a final permitting decision from the government, which should happen by mid-August.

Go-ahead on LNG export projects like this has been a much-anticipated event in the U.S. With shipments of natural gas abroad seen as one of the most direct cures for the lower natgas prices prevailing across North America.

But it's interesting to look at what's happening simultaneously in natgas markets abroad these days.

Especially when it comes to international LNG prices. Which have been falling significantly in several key markets.

The most notable declines have come in major LNG-consuming nations Japan and Korea. Where prices are captured by the so-called JKM Marker, calculated by commodities specialists Platts.

And JKM prices have been tumbling of late. Last week, settlements for June LNG deliveries fell through $14/MMBtu. Closing out the week around $13.625.

That's a big drop from the +$20/MMBtu prices these markets enjoyed just a few months ago. Suggesting that Asian LNG demand may be flagging more than many observers believe.

Of course, it's possible this is just regular seasonal weakness during the summer "shoulder" buying period. In which case, LNG prices may rebound over the coming months.

But the scale of the recent price drop suggests this could be something more. Indeed, power generators in places like Japan have been making a concerted effort to move away from LNG to alternative fuels like coal.

If that's the case, America's LNG export dreams may be coming together at exactly the wrong time. U.S. shipments to key Asian markets won't be low-cost--instead depending on relatively buoyant global pricing to make them economic.

If prices slide instead, we could see a lot of money being lost on LNG bets here. Keep on eye on the JKM.

Here's to smart development,

By Dave Forest




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Leave a comment
  • Robert Godfrey on May 21 2014 said:
    The article's author mistakes an Environmental Assessment (EA) with a "ruling." The FERC Commissioners have made no permitting ruling (decision) as yet; they use the staff-prepared EA to aid them in their ruling.

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