LNG exports could increase price volatility in U.S. gas market

(Bloomberg; July 29) -After years of languishing in a shale-induced coma, the U.S. natural gas market is waking up. Seasonal price swings will intensify as the country begins shipping liquefied natural gas cargoes to Asia and Europe later this year, says Bank of America, RBC Capital Markets and Wood Mackenzie. While that’s good news for traders yearning for volatility and profits, it could be bad news for consumers.

LNG exports will help prices rebound from the slump caused by the U.S. pumping record amounts from shale formations. Growing domestic winter demand is already causing spikes and trading volumes in futures markets have rebounded to the highest level in three years. Average retail natural gas prices also will rise with LNG exports, according to Bloomberg New Energy Finance. “Connecting U.S. natural gas prices into the global market could result in wider spreads at home,” said Francisco Blanch, the head of commodities research at Bank of America in New York.

Cheniere Energy will start up its LNG export terminal this year in Louisiana, the first ever in the Lower 48 states. Four more U.S. plants are under development. Demand growth, including LNG, will lead to more seasonal price volatility, said Breanne Dougherty, a gas analyst at Societe General in New York. LNG exports might remove enough supply from the market that volatility will rise during particularly cold winters, said Michael Mitton, director of the commodity investor team at BNP Paribas in New York.