Fads Don’t Come Back In Fashion In The Energy Industry

I have to admit that I am a bit of a hoarder. I do know where it came from as every year my mother supplies me with another box of elementary schoolwork or old trophies from my childhood. My wife is always trying to get me to declutter my wardrobe, and I usually oblige. But when it came to my favorite pair of cords, I had to put my foot down even though she told me that they were out style. Traditional natural gas market dynamics that had been relatively the same for the last 70 years have suffered the same fate as my cords.

What a transformation the energy market has gone through over the last decade! In 2007, I remember attending natural gas shows where analysts were discussing Japan’s Liquid Natural Gas (LNG) prices of around $27/Dth to predict where the U.S. natural gas prices could top out. Fears that China would gobble up the world’s natural resources and U.S. traditional gulf supply basins nearing the end of their producing life sent the NYMEX Natural Gas to settle at $13.105 in July of 2008. There was also a rush to build LNG import facilities to be able to keep U.S. natural gas supply and demand in balance. Like the 70 years before, in 2008, the Northeast markets depended on natural gas coming up from the Gulf of Mexico to meet peak winter demand. According to the EIA, Gulf imports into the Northeast averaged 7.9 Bcf/d when max demand for the Northeast region registered under 15 Bcf/d. From 2008 to 2013 natural gas imports into the region from the gulf decreased 56%.

During this same period, the biggest market game changer was supposed to be the construction of the Rockies Express Pipeline (REX). REX was designed to alleviate trapped natural gas production in the Rockies by transporting it to eastern Ohio to interconnect with other pipelines which supply the Northeast. As of late 2014, REX started reversing flow and is now moving gas produced in the Northeast to Western markets.

Almost all of the LNG import facilities built during the ‘Aughts have filed for the ability to reconfigure their plants in order to export domestically produced natural gas. A handful have already been approved.
On top of all of this, due to current gas low pricing, producers are “shutting in” gas. Producers are literally putting a cork in their wells to keep them from producing. Even with natural gas becoming ever more present to fuel electric generation and power the largest fleets in the nation, prices still remain relatively low even with tempered production.

The domestic natural gas boom spurred by fracking technology has put traditional natural gas market dynamics out of style. Unlike my favorite cords that eventually came back into style, the traditional natural gas market dynamics are gone, and I do not see them returning.