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Mirage on the Ocean?
The United States is poised to become one of the largest exporters of liquefied natural gas, LNG, in the world.
Industry press reports claim players expect that U.S. gas is about to change the global L.NG market forever, fueling European gas-fired power plants in the near future.
Indeed, as of June 2016, FERC had approved converting eight abandoned LNG import terminals into export terminals. Five were under construction at the time. Fourteen more proposals are under review or are in the pre-filing stage.
Several facilities are already proposing expansions to their original projects. The entry of the U.S. as a major exporter in the market will definitely have an effect on LNG world trade.
However, the vision for U.S. LNG exports to spark a true commodity market, like oil, does not take into account the unique features in regulatory and cost structures that fog that vision.
Worldwide Oil Market versus Regional Gas Markets
There are just three key oil market hubs. Brent. West Texas Intermediate. DMEOman.
Brent is named for the Brent Field in the North Sea. West Texas Intermediate is based on landlocked pipelines that terminate in Cushing, Oklahoma. DME Oman is traded with a physical loading point at the Mina al Fahal terminal in Oman.
Oil companies, financial derivative traders, and governments use these hubs as benchmarks for the spot trade, for futures contracts and for contract price formulas. Except for occasional local constraints, the three international spot indexes move together.
See Figure 1.
There are many so-called gas-trading hubs. But only the Henry Hub, located in Erath, Louisiana, is anything like the world's oil trading hubs. The Henry Hub is a fully "financialized" physical trading point for New York Mercantile Exchange gas futures, NYMEX, where the financial markets trade in gas price risks like they do at the three oil trading hubs.
The facilities, owned by Sabine Pipeline LLC, connect to nine interstate and four intrastate pipelines. NYMEX chose this location as virtually tailor-made for pricing gas futures because of its physical links to so many sources of supply.
By contrast, gas trading hubs in Europe are "notional" in that they do not refer to a specific physical point. European Union member states created these hubs...