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Exports give US gas buyers something extra to consider when procuring supplies

Houston (Platts)--13 Jun 2018 435 pm EDT/2035 GMT


Several major US natural gas buyers said Wednesday they face challenges procuring supplies to meet demand in downstream markets such as the Mid-Atlantic and Southeast due to competition for the resources from shippers to Mexico and LNG export players. Insufficient Northeast pipeline infrastructure was cited as another problem.

The comments during the final day of the LDC Gas Forums Northeast conference in Boston highlight the changing dynamics of gas flows and new global markets that are being opened up by technology that is making drilling more efficient.

As a result, gas buyers said they are more acutely aware of the need to lock in long-term firm transportation, tap storage when available, and adjust their hedging strategies to deal with price volatility that is often driven by system bottlenecks.

"The Southeast is now a net importer. We have transitioned from a supply zone to a market zone," Jeff Avery, director of natural gas at the Tennessee Valley Authority, told attendees at the conference. "With that change, we want to take some of the risk off the table."

TVA, which provides electricity for business customers and local power companies serving nine million people in parts of seven Southeast states, has been diversifying its portfolio in recent years to give it more options for fuel. But natural gas is an important piece, especially as a bridge fuel for increasing use of renewables.

With the Appalachian Basin being a key supply zone, producers have been eager to move more supplies to the Southeast, and they have been encouraging midstream operators to add more takeaway capacity.

"With the influence of LNG export growth as well as the Mexico demand, being in the area where TVA is, they are now a very sizable competitor of ours for gas molecules," Avery said.

In its annual statistical review of world energy, BP said Wednesday that LNG exports, in particular, are altering gas markets because they have greater mobility due to destination flexibility in response to price signals.

While there have been a number of new pipelines that have come online in the Northeast, with others under construction, gas buyers said much more is needed. That means pushing state and federal regulators to speed up the permitting process, they said.

"The main focus is to have available, low-cost supplies," John Tammaro, manager of gas supply administration for National Fuel Gas Distribution, said at the conference. "We're fortunate to be in an area that I call the new Gulf of Mexico -- that's the Marcellus and Utica shale."

At the same time, Tammaro said his company is concerned with how natural gas is viewed by decision-makers, including the Federal Energy Regulatory Commission. "The FERC and the states combined are two hurdles we always have to address," he said.

Pricing also is in the mix for gas buyers looking for sufficient supplies over the long term, according to Avery.

"I do love low pricing, but I also want a healthy producer base," Avery said. "I do think a stable pricing environment is very important in the industry, instead of these ups and downs and wild swings." --Harry Weber, Harry.Weber@spglobal.com

--Edited by Richard Rubin, newsdesk@spglobal.com




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