Weather Forecast Looks Bright For LNG But I’m Skeptical

For a lifetime trader of fossil fuels, it’s been like living in the dark.  I’ve never seen a better market to be long crude oil, where the risks to the upside were, to me, exponentially deeper than the possibilities to the downside – but my shrinking profit and loss statements have been a contrary indicator to be sure.

Natural gas has been almost the exact opposite, where downside risks are far more numerous than the possibilities for a big move higher.  And yet, nat gas is showing some surprising strength, considering the moderate summer we’ve just come through.  As with crude oil you have to ask – what is going on?

One chart I love to start the conversation on natural gas is this one, from the Energy Information Association:

Even for those of you who are aware of the shale revolution in the US, this serves as a fantastic representation of just how incredible the growth in gas production has been here in the US.

And remember: while US crude demand will never be satisfied by US production, natural gas production from shale has almost completely satisfied what the US uses – and ultimately the excess that gets produced has nowhere to go.  

Sure, there’s been hopeful talk from natural gas advocates about a conversion in the US to a ‘gas-based’ energy infrastructure:  transport trucks and cars running on US shale gas, utility plant conversions, gas-to-liquids projects…