Great Divide

It’s well understood today that the U.S. natural gas market turned from potential domestic shortages to major LNG exports thanks to the Shale Revolution. What is not so well remembered is that the dramatic shift in the U.S. gas market wasn’t widely understood at the time and took several years to be accepted by the energy industry. In today’s RBN blog, we turn our attention to the beginnings of the Shale Revolution and how it allowed the U.S. to evolve into the world’s largest LNG exporter. 

We saw a slight recovery in crude prices Friday (December 19, 2014) with CME NYMEX West Texas Intermediate (WTI) futures up $2.41/Bbl from Thursday’s close. At the same time CME NYMEX Henry Hub natural gas futures were down $0.18 to $3.464/MMbtu. That meant the crude-to-gas price ratio between these two commodities was up 1.5X to 16.3X from it’s recent low under 15X on Thursday. However futures markets indicate that market expectations for the crude-to-gas ratio are for it to remain at a low level between 15X (i.e. WTI in $/Bbl is 15X Henry gas in $/MMbtu) and 17X for most of the next decade. If that turns out to be true there are serious implications for shale drilling, gas processing and LNG export prospects in the U.S. Today we look at what may happen and why.