Natural gas depletion and what it will mean this winter

…Gas is an infrastructure business: it can be transported either by pipelines (doable if the gas field and the consumers are at a reasonable distance from each other, and on the same landmass) or by LNG (on sea, but on a cargo by cargo basis, i.e. smaller volumes). LNG trade is slowly beginning to connect what were previously totally separated markets in Europe and the USA, but the volumes in play are still pretty small, and North America currently gets 99% of its gas from North America.
Today, there are 5 terminals in service in North America, and 4 under construction (essentially those that will receive Qatari LNG). Beyond that, a number of projects are under way, but it’s not clear whethere they will be permitted and where they will get they LNG from (most of the projects from the countries listed above Qatar in the above graph are still tentative as of today).

So, if all goes well, some volumes of LNG will get to the US market from 2009 or so – not enough to cover the expected shortages then – nor earlier. Higher Henry Hub (HH) prices will attract “spot” LNG to some extent (i.e. uncommitted volumes that some producers have available) but that it never going to be a significant portion of that business which requires very heavy investments (Qatar will have spent 55 billion dollars to bring its LNG export capacity to 9bcf/d in 2010) – and thus long term contracts for most avialable volumes to underpin these investments. But that spot LNG market will drive prices up.

So far, winter has been pretty mild, and thus Henry Hub prices have not gone up further – they are now back at their post-Katrina levels:

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