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As exports of gas increase and prices plateau, is a new era of cheap business gas dawning?
The ‘dash for gas’ has transformed the US energy sector. As more countries jump into fracking and exports from traditional gas extraction methods increase on the back of floating liquefied natural gas (FLNG) transport, the nature of gas production and consumption is changing.
The most obvious change has been the shale gas extraction – known as fracking – successfully developed by US oil and natural gas producers.
The primary beneficiaries of lower gas prices have been US businesses, especially energy intensive industry. While neighbours like Mexico have also gained (something that is often overlooked), US gas exports have not directly impacted other markets.
The obvious consequence has been a reduction in US demand for imports and driving prices down through low prices at the Henry Hub in Louisiana. Henry Hub is an important benchmark for international commercial gas prices. But, while it used to track the prices of imported gas, now much of the gas passing through the four intrastate and nine interstate pipelines is domestically produced.
US gas suppliers have actually been hurt by the low price of gas, especially as oil prices have recently plummeted (some LNG contracts are linked to the price of crude oil).
Exporting liquefied natural gas (LNG) is widely hoped to make US shale gas viable. Billions of dollars are being spent in the US on liquefaction facilities to produce LNG for export. But, as already mentioned, international prices have also fallen, making it increasingly challenging for the US LNG export gas business.
Other LNG business gas suppliers are facing a similar squeeze, including Australia and Qatar (who are both spending on LNG facilities, some of which are ‘floating LNG’ or FLNG). And conventional gas supply (via pipelines) continues: despite unrest in Ukraine, gas from Russia continues to flow into Europe, with Gazprom going on a buying spree. In the medium term, other supplies of business are coming online, from new discoveries in the North Sea, to a new ‘superfield’ in the Mediterranean and the resumption of gas exports from Iran.
This glut comes just as the biggest consumer, Japan, is reducing demand by restarting nuclear reactors.
Some in the industry fear a race to the bottom as gas for business prices fall further. Suppliers with high production or transport costs could quickly go to the wall.
LNG suppliers’ may be seen to herald a ‘golden age’ for UK SMEs, with the best business gas in recent years. Certainly, those who have not made a business gas comparison in the last 6–12 months may be surprised at the deals on offer.
But waiting for further reductions could be the wrong strategy. An array of unpredictable events can influence business gas tariffs, but an extra 5% of supply can have only a limited influence on business gas rates.
Perhaps most obviously, few SMEs will be willing to wait three years for a modest reduction in gas prices. And a business price comparison doesn’t have to be onerous: just 20 minutes is enough for us to quickly compare business gas suppliers and switch you to a new deal (with us taking care of the paperwork). Give us a call on 0330 0100 251 (or request a call back using our form).
Find out more about business gas at our dedicated page.
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