Last Friday there was an announcement by Cheniere Energy Partners (NYSE : CQP) that reflects an important factor that may already me impacting business electricity rates across the country. They announced that they had received authorization from the U.S. Department of Energy (DOE) to export domestically produced natural gas from the Sabine Pass LNG terminal as liquefied natural gas (LNG).
This terminal, which is strategically located on the Gulf of Mexico is a bi-directional facility that can receive imported LNG, or export up to 803 billion cubic feet (BCF) per year. The conversion rate puts LNG capacity at about 16 million metric tons per annum (MTPA). Assuming satisfactory completion of the FERC review process and completion of physical construction, it looks like operations should commence in 2015.
There are many ways to parse this news depending on where you fit into the market, either on the supply or demand side and depending on your vision of the ideal energy future for the U.S. Natural gas has been trading sideways near historical lows since the rapid fall in prices that started in June 2008. The massive increase in natural gas supply, coupled with demand destruction as a result of the recession has created a painful market for producers, while providing opportunity for consumers who have taken advantage of low business electricity rates for the past few years.
The market rallied on the news on Friday, and this trend could gather steam. There is definitely a good argument for the DOE and FERC to accommodate producers hoping to tap into foreign markets where the price for natural gas is trading at a multiples of 2 to 3 times domestic prices. With the nuclear fiasco in Japan it is all but certain that natural gas and LNG in particular will see increased demand in coming years. Job creation, balance of trade, and increased production of our abundant domestic supply of cleaner burning natural gas are just a few of the additional reasons why it is likely that we will see more announcements along these lines. If your goal is to lock in business electricity rates while the market is still skipping off the bottom, your time may be running out. Stay tuned, and just keep an eye on prices in 2014 and 2015 for good gauge of where prices could quickly climb to in a much shorter time frame depending on how things unfold.