Commodity Management Blog

Innovative Ideas and Thought Leadership for Volatile Commodity Marketplace

Michael SchwartzThe energy industry and its associated supply chains are fast-changing and very complex. Just a few years back, several companies built LNG import terminals to meet the energy needs of the U.S. 

According to a NY Times articlethe billion-dollar terminals were obsolete even before the concrete was dry as an unexpected drilling boom in new shale fields from Pennsylvania to Texas produced a glut of cheap domestic natural gas. Now, the same companies that had such high hopes for imports are proposing to salvage those white elephants by spending billions more to convert them into terminals to export some of the nation’s extra gas to Asia and Europe, where gas is roughly triple the American price.”

Currently there are 25 LNG-importing countries in Europe, Asia, South America, Central America, North America and the Middle East, up from 17 importing countries in 2007. 

Cheniere’s Sabine Pass LNG Terminal in Louisiana was the first to receive approval to export LNG. According to Steven Chu, the U.S. Energy Secretary, “Our long term economic strength depends on safely and responsibly harnessing America’s domestic energy resources while developing new and innovative clean energy technologies.  This project reflects a broad, ‘all of the above’ approach that will put Americans to work producing the energy the world needs.”

The open question is whether this a good investment, or is the market changing so rapidly that the investment in LNG export terminals will also be obsolete before the terminals are fully functional? The same NY Times article mentions, “countries around the world are importing drilling expertise and equipment in hopes of cracking open their own gas reserves through the same techniques of hydraulic fracturing and horizontal drilling that unleashed shale gas production in the United States. Demand for American gas — which would be shipped in a condensed form called liquefied natural gas, or LNG — could easily taper off by the time the new export terminals really get going, some energy specialists say.”

Whether it’s Crude, LNG, Natural Gas, Power, Biofuels or other energy commodities, the common denominator is volatility and complex supply chains. The combination of volatility and complexity is the reason Triple Point’s ETRM (energy trading and risk management) software has been in great demand over the last five years.  Energy companies that have not invested in sophisticated ETRM software have put their businesses at a competitive disadvantage.