BP PLC’s Global Chief Economist Spencer Dale has forecast that the US Henry Hub will be the benchmark for global LNG prices into the future. He said US LNG will be the marginal source of global supply and therefore LNG prices are likely to be determined by prices at Henry Hub.
Speaking at a luncheon in Trinidad and Tobago held to discuss the 2016 BP Statistical Review, Dale forecast that over the short term there will be an oversupply of LNG with a new train coming on stream every 9 weeks.
Dale said this is likely to keep prices relatively low with Henry Hub prices averaging $3/MMbtu while prices in Europe and Asia average $1-2 higher than at Henry Hub. However, Dale said in the long run there will be an increase in LNG demand, which will balance supply and demand and lead to LNG prices taking their cue from Henry Hub.
BP’s chief economist opined that global LNG supplies will continue to rise and overtake pipelines as the major source of supplying gas to the world. Dale explained that this is because LNG is more nimble than pipeline gas and can respond rapidly to market changes.
He pointed to the case of the Asian market in 2011 following the Fukushima nuclear disaster in Japan, where there was a strong need for additional LNG supply, which led to higher prices.
He said, “If you have a pipeline then you cannot respond. You have to keep on pumping wherever you were pumping. But if you are the captain of a ship in the ocean, then you can turn your vessel around and take that gas to the place where it is fetching the highest price.”
Dale told the luncheon audience that the growth in LNG will be driven mainly by Australia and the US with the emergence of a global integrated gas market. He said the US was likely to have excess LNG capacity, which it will use to sell additional quantities of LNG into the global system as long as it can cover the variable costs.
Dale said the shale revolution was here to stay and that by 2035, shale will be responsible for half the gas supply growth worldwide.
He said while the US will remain king of shale, it was expected that Russia and China will also increase their gas production but from conventional sources.
Dale said gas will be used increasingly to replace coal to power the future industries and provide electricity for the millions who will be lifted out of poverty in countries like India and China.