U.S. LNG importers turn to export markets for help

The U.S. liquefied gas market, traditionally an import-only business, may be poised for some big changes that would allow under-utilized regasification terminals to export the super-cooled gas to more profitable overseas destinations, industry experts said.

Freeport LNG recently requested permission from the U.S. Department of Energy's Office of Fossil Energy to export LNG from its terminal located near Houston.

"They're trying to get this done as quickly as they can to take advantage of the (higher-priced) Asian market," said Steve Johnson of Waterborne Energy in Houston, noting storing LNG at underused facilities will also help keep equipment cooled.

While the nation's only liquefaction plant in Alaska has been exporting LNG for 40 years, and some natural gas is exported by pipeline to Mexico, LNG has not yet been shipped overseas from the continental United States and may heighten concerns about having enough supply to meet future demand.

So far this year, LNG shipments to the United States have dropped to about 1 billion cubic feet per day, less than half last year's record rate of 2.1 bcf daily, and most experts don't expect the pace to pick up any time soon, with U.S. gas prices pegged well below some European and Far East markets.

Johnson, noting some Asian countries like Japan and South Korea were already paying more than $20 per mmBtu for late summer deliveries of LNG, said he expects Far East prices to top $30 this winter, an all-time high.

By contrast, U.S. East Coast gas prices this winter, typically the highest in the nation, are currently stalled between $12 and $15, far below other global destinations.

With LNG in Trinidad, a major spot supplier, currently costing about $18 and expected to move up from there as winter stock building in Europe and Asia gets underway in the fall, the pace of LNG shipped to the U.S. should stay sluggish, at least for the next six months or so.

Others Looking to Export

Diane Haggard, communications manager at Cheniere Energy, said Cheniere had also applied for a similar export license for its Sabine Pass terminal in Louisiana.

"LNG storage capacity in the U.S is under-utilized. This would allow our terminal the flexibility to respond to market conditions," Haggard said.

Industry experts said a simple retrofit that costs about $10,000 would give most current regasification terminals export capabilities in a few weeks, but getting approval takes longer.

There are eight LNG regas terminals currently operating in the United States, but not all have the storage capacity to load the typical LNG cargo of about 3 billion cubic feet.

Reexport Versus Floating Storage Plays

While no one is looking to export domestically-produced gas yet, authorization to export LNG received from foreign sources would allow terminals to offer prices that are competitive with current floating storage plays, where shippers charter a tanker, load it with LNG and slow steam for a couple of months towards a higher-priced market.

While there are fees involved for tanker loading and unloading and for monthly storage, parking LNG in a regas terminal for future export would save shippers chartering fees and boil off losses and allow tankers to be used in other jobs while waiting for a seasonal peak in overseas prices.

It's also possible that U.S. gas prices could spike while the LNG is parked due to storm threats or extreme temperatures, allowing a sale of the super-cooled gas to the U.S. market.

Is U.S Liquefaction Far Behind?

With U.S. natural gas production likely to continue to see strong gains in coming years, primarily from new shale plays, some experts said reexporting LNG may be just the first step before building a liquefaction plant in the Lower 48 states that would convert gas to liquid form for shipment overseas.

But most agreed it was still a distant prospect.

"The concept of liquefying domestic gas and exporting it to other markets has come up recently, but it's a complicated process that will take a lot of time and investment," said Bill Cooper at the Center for LNG, a Washington, D.C. trade group.

For one, plant construction costs can run into the billions of dollars and take several years to complete.

In addition, the possible passage of a U.S. climate change bill could put upward pressure on gas consumption and quickly tighten the supply-demand balance.

Finally, there are political considerations.

"The U.S. is getting more concerned about security of supply and reliance on foreign sources of energy, so are people going to want to export gas now?" said Murray Douglas, an LNG analyst at energy consultants Wood Mackenzie in Houston.

[Source: By Joe Silha, Reuters, New York, 22Aug08]

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