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Natural Gas Trading: Pricing In The 'Highly Improbable'

June 5, 2019  

The current natural gas price is consistent only with the most bearish view. The market is pricing in the highly improbable scenarios and it is, therefore, destined to be disappointed.

Some of the most bearish arguments that we heard over the past few days are:

1. U.S. exports of liquefied natural gas (LNG) will plunge as China hits back at U.S. with new import tariffs on energy.

The truth is > China has never been a major importer of U.S. LNG. In 12 months to the end of March 2019, only 6% of all U.S. LNG went into China. Furthermore, given that all U.S. export terminals are located on the East and Southeast coast, East Asia has never even been the most obvious export destination. The buyers in Latin America, Europe, and South Asia are more promising.

2. U.S. pipeline exports into Mexico will plunge as Mexico hits back at U.S. with new import tariffs on energy.

The truth is > instead of dropping, pipeline exports into Mexico are actually likely to increase once Sur de Texas natural gas pipeline comes online by the end of June. Unlike China, Mexico is a major importer of U.S. natural gas. In fact, in 12 months to the end of March 2019, Mexico bought 50% of all natural gas exported from the U.S.

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