The advent of the LNG Export Era has had a dramatic impact on the North American Natural Gas Market. Nearly 13% of all natural gas produced in North America is shipped overseas to trading partners; exposing domestic customers to international markets. This global market exposure has been highlighted by the events in Ukraine when Russian pipeline deliveries were shut off and Europeans were left high and dry. Europe was able to avoid disaster by a combination of large quantities of LNG imports and two warmer-than-normal winters. The impacts of such unforeseen situations to Europe and North America show the importance of scenario analysis–not just for geo-political conflicts, but for natural disasters and/or weather events as well. Similarly, considering the impact that Freeport LNG’s outage had last summer on supply/demand balances and prices, vetting the effects an LNG export stoppage could have on the North American Market is of particular interest. One way to model this kind of demand impact is to create a scenario that incorporates a large-scale hurricane which assumes LNG export terminal shutting down for more than just a few days.
Recent hurricanes have largely spared the Texas and Louisiana coasts, where LNG export facilities are predominantly located. However unlikely, the probability of a large-scale hurricane causing an extended outage is not zero – e.g., previous large-scale, slow-moving hurricanes have caused flooding issues at refineries/petrochemical facilities causing extended outages. We at RBAC, Inc. used GPCM® Market Simulator for North American Gas and LNG™ to simulate exactly that, hurricane related extended outages. Three scenarios; simulating a 30-day, 60-day, and 90-day suspension of LNG exports out of the Gulf as well as corresponding reduction in offshore natural gas production from the Gulf. We will look at pricing impacts to major pricing hubs, to production, as well as how storage acts as a buffer.
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