A lot of “unfortunate” attention has been put on the Federal Reserve’s leadership ahead of today’s FOMC meeting following President Obama’s comments that Chairman Ben Bernanke has “already stayed a lot longer than he wanted or he was supposed to.” So while potential candidate names such as Janet Yellen, Timothy Geithner, Christina Romer, Stanley Fischer, Larry Summers and Roger Ferguson are all being thrown around the office water cooler, I’m more interested in how the conversation of Bernanke in the past tense will influence tomorrow’s energy prices.
Life post Bernanke, regardless of who sits in his chair when he leaves, means higher interest rates since an economic recovery is at work and let’s face it, interest rates can’t stay this low forever. The thought of Bernanke not leading the Fed has accelerated my own thinking that interest rates are going higher sooner than later and that could spell bad news for some proposed liquefied natural gas (LNG) terminals.
Energy companies have been already at issue with the Department of Energy’s (DOE) move to create a “queue” for projects based on when applications were filed with the department. With 16 pending applications (13 U.S.; 3 Canadian) to the Federal Energy Regulatory Commission (FERC), the independent agency that reviews proposals for LNG, there could now be a few months before each individual export terminal permit decision is made. That means companies who are at the bottom of the queue may not see approval until 2016.
With an economic recovery taking place here in the U.S. and a methodical rise in interest rates coming (maybe sooner than later with a new Fed chief at the helm), this means the costs associated to move projects forward will get a lot costlier. This may deter some projects from seeing daylight and that would cause additional natural gas supply to remain here at home. So rising costs to develop export facilities may curb any natural gas rally. Without quicker permitting approvals in LNG terminal, we could see coal stocks gaining investor interest since weakness in natural gas prices will only make coal more price competitive. A glut in domestic natural gas will also make a louder case for cogeneration plants and potentially impede the current rally in crude oil unless there was any disruption of supplies.
For a full list of North American LNG proposed and potential LNG export terminals please click here.
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