Texas Shale Gas Headed For Europe

shale gas plantCheniere Energy has begun liquefying natural gas at its Sabine Pass terminal on the Texas-Louisiana border. The gas will be loaded onto a ship scheduled to travel overseas later this month. That’s welcome news for Texas and U.S. gas producers. A glut of shale gas has depressed prices in the domestic market. Slower growth in China and South Korea have clouded prospects for LNG shipments from Alaska to Asia. That leaves Europe, where demand for natural gas remains strong —  and prices are much higher. –Jack Beavers, WFAA News, 4 January 2016

The worst fears of OPEC and Asian gas exporters are about to come true. U.S. shale drillers who pushed domestic crude production to a 45-year high and unlocked record amounts of natural gas are letting those supplies loose into global markets they were absent from for decades. The tanker of shale oil that shoved off from a Texas port on New Year’s Eve and a shipment of liquefied natural gas that’s prepared to set sail later this month will inaugurate a new era of competition among the world’s largest energy producers. “Who would have thought we would be exporting both oil and LNG in the same month?” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “Fracking has changed the world.” –Joe Carroll and Naureen Malik, Bloomberg, 4 January 2016

When Russia started making trouble in Ukraine two years back, policymakers across the continent suddenly seemed to recognize the problems associated with their heavy reliance on Russian gas imports. Many alit on LNG imports as a potential solution to their “Gazproblem,” but at the time we pointed out a wrinkle: LNG supplies go to the highest bidder, and Asia was paying a high premium for those hydrocarbons back then. Now, it’s a very different story. The Asian premium has been all but erased, and a market already brimming with Qatari and Australian supplies is now starting to absorb U.S. shale gas. As the U.S. continues to beef up its LNG export infrastructure to help offload some of our natural gas glut on the global market, Europe is going to continue to build out its import infrastructure. That’s bad news for Putin. —The American Interest, 4 January 2016

Chancellor George Osborne says Britain should be in favour of new forms of energy like fracking which could cut bills and carbon emissions and create jobs. Mr Osborne said: “Like lots of other countries, we in Britain should be in favour of new forms of energy like fracking that can lead to lower family bills, more jobs and lower carbon emissions for our environment. With our new wealth fund, I’ve also made sure the money raised in profits is spent to benefit our local communities, something that didn’t happen in the past.” –Ian Ross, Knutsford Guardian, 4 January 2016

Saudi Arabia has played the role of ‘swing producer’ at times over the decades. The best example dates back to the 1980s. As everyone knows, Saudi Arabia decided to increase market share at OPEC’s November 2014 meeting. Prices plummeted and have continued to erode more than one year later. Given the price slide, U.S. shale producers have decided to build up spare capacity of their own, making them the world’s new swing producer. The have been investing in drilled but uncompleted wells (DUCs). The inventory of DUCs is estimated at around 4,000, which may be capable of bringing 500,000 barrels per day on-line quickly, should prices rise and the companies pull the trigger. Such a surge in extra oil would take the world some time to absorb, keeping a lid on prices. –Robert Boslego, Seeking Alpha, 3 January 2015

Perhaps the most unusual thing is that, despite a major sectarian conflict between the Middle East powers of Saudi Arabia and Iran, oil prices have barely budged from their recent lows. This is a truly bizarre data point. Oil is typically amongst the most fear-driven commodities. Supply and demand are supposed to rule markets, but every time there’s a big conflict in the oil-rich Middle East, from the Iranian revolution to the Gulf War, prices go up about 30% higher than they should be, regardless of the facts on the ground. Even when supply isn’t interrupted, even when there’s plenty of oil to fuel world markets, the price of crude is typically driven by fear rather than reality. But this time around, there’s an incredibly strange mix of bad global news that might actually add up to an unexpected bright side: continued low oil prices. —Rana Foroohar, TIME, 4 January 2016

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