Atlas Eyesight

NEWS THAT MOVES
MARKETS

Surge In Demand Places Pressure on Global Prices

by Max Stewart


 

In the energy world, New England is sometimes referred to as being ‘on an island.’ The phrase stems from the fact that there is inadequate natural gas pipeline infrastructure in place throughout the region to fulfill normal demand levels. In fact, during the cold winter months when natural gas demand spikes, we lean on imports of Liquified Natural Gas (LNG) to meet the demands of the region. This LNG arrives via ship into the Boston area and provides natural gas to residents and businesses across New England.

In recent years, imports of LNG into the Boston market have accounted for nearly ¾ of all U.S. imports. While the total domestic export capacity of LNG has increased over the last decade, the Jones Act of 1920 requires that goods transported between U.S. ports are transported on ships that are U.S. built, owned, and flagged. To date there are zero U.S. owned & operated LNG tankers. This requires all imported LNG to be sourced from other countries. This means that New England more so than any other region in the Country is heavily impacted by the global price of LNG.

A Detailed Look at Global LNG Prices

New England is now competing for LNG cargoes with the global market. As the war in Ukraine rolls on, Europe is aggressively trying to wean itself off of its historic use of natural gas imported via pipeline from Russia. Due to this tick up in demand, LNG prices in Europe have skyrocketed. Additionally, LNG prices in Asia have shot higher as a result of demand coming back on line as COVID restrictions ease up. This surge in demand has in turn placed upward pressure on global LNG prices.

While markets are extremely volatile, front month natural gas is hovering around $40-$50/mmbtu in Europe. That same contract here in the U.S. is hovering between $7-$9/mmbtu. In a free market it’s safe to assume that LNG tankers would be sent to the location that will yield highest profits. Prices in New England will have to lift higher to attract the necessary LNG to get through winter 2022-2023.

How to Take Action

Energy buyers in New England with exposure to the upcoming winter need to take a proactive approach and be aware of the risks. Atlas has worked with clients closely to implement solutions to effectively manage the unprecedented volatility. Please reach out to discuss specific impacts this winter could have on your operating budget.

The Atlas Retail Energy team is eager to answer your questions. You can reach out to Max Stewart or contact us.