LNG variable costs

The latest weather forecasts for the second half of December have taken the edge off the U.S. natural gas market and reduced the chance of a true doomsday storage scenario. But U.S. gas storage inventories nonetheless remain at historically low levels, and long-term weather forecasts are notoriously fickle. So this winter could still see a resurgence in volatility before the market finds a balance. And while Henry Hub prices went on a wild ride earlier this month before settling back in below $4/MMBtu, for most of December thus far, Eastern gas prices have traded at levels that make LNG exports from there uneconomic. In today’s blog, we continue our review of the winter U.S. gas market with a closer look at how Cove Point Liquefaction (CPL) might respond to high prices.

Reliably low Henry Hub natural gas prices are a primary, long-term driver of U.S. LNG exports. But prices were up as much as 40% during November and, with gas inventories unusually low, Henry prices could spike considerably higher if winter weather continues to come in colder than normal. Which raises the question, how high would gas prices need to go before U.S. liquefaction becomes the lever that balances the U.S. gas market? The short answer is, it depends on where the LNG is headed — and lately, a lot more is bound for Europe. Today, we continue our review of the current gas market with an analysis of LNG variable costs and UK National Balancing Point prices, and how they will help determine LNG export volumes if U.S. gas prices spike.