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LNG Export: A U.S. Natural Gas Game Changer?

Jun. 06, 2011 4:59 AM ETSHEL, CVX, XOM, COP, CHK, DVN, GTLS, GE, FLR, SHAW, CQP, SIEGY26 Comments
EconMatters profile picture

Unlike crude oil, which is traded globally via tankers and pipelines, natural gas trading remains primarily isolated within the producing regions and lacks the infrastructure to be a true global commodity.

In the past few years, increased LNG (liquefied natural gas) trade is gradually transforming the global natural gas market. However, bustling U.S. shale gas production and weak demand due to recession have created a significant supply glut as the U.S., depsite nine LNG import terminals, has near zero LNG export capacity.

While crude oil prices have been climbing on trading activities and geopolitical tensions, domestic natural gas prices have remained stagnant in the $4 per mmbtu (million British thermal unit) range for the past year or so, practically immune to the effort by the Federal Reserve to inflate asset prices through two rounds of QE (See Chart).

10% LNG Export by 2015?

Despite a well-supplied market, Henry Hub has experienced a rare excitement spiking to a 10-month high partly on the prospect of increasing LNG trade (See Chart) and export after the U.S. Energy Department authorized Cheniere Energy (Amex: LNG) to export LNG from its Sabine Pass terminal.

Chart Source: FT.com

Sabine Pass is the largest of nine import LNG facilities in the United States. Cheniere Energy plans to retrofit the import terminal for liquefaction capabilities. Construction is set to begin in 2012 and the production is expected to come online in 2015.

Morgan Stanley has estimated that North American LNG export capacity may exceed 6 bcf/d by 2015, or around 10% of the current US daily production of 60 bcf/d. Morgan Stanley said it expects the ramp-up of the LNG export to ease the current stranded price environment as both the US and Canada have LNG export projects in the works targeting LNG export by 2015.

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Comments (26)

PE Tom
18 Oct. 2011
If exporting NG causes NG prices in the US to increase to global levels it will be very bad for American consumers & industry. NG is the most desirable fossil fuel from a greenhouse gas standpoint but also provides economic advantage vs coal. Coal should be phased out ASAP from both an environmental and human health standpoint. Just talk to the families of dead coal miners in WVA, UTAH, PA, etc. It is ironic that the US is now considering building the Keystone XL pipeline from Alberta, Canada to Texas to transport synthetic "oil" made from tar sands, the dirtiest of fossil fuels, and at the same time sell the cleanest fossil fuel, NG, to foreign countries. These are the same companies that touted that the gas from shale formations would provide 100 years of ample fuel for national security!! Now it is up for sale?
PaulretiredinAR profile picture
Even if the price of LNG off-loaded in Asia is near the current price of $12/mmbtu, it won't push American price above $7/mmbtu because it costs about $5/mmbtu for us to liquefy and ship it. Even if we don't produce LNG, our price will probably gradually move to ~$7 due to domestic supply/demand economics.
TripleG profile picture
Nothing wrong with exporting but we need to incorporate LNG into our own energy program to get off Islamic Oil as the first priority.
PaulretiredinAR profile picture
Excerpt from Bloomberg Jun 7, 2011:

"Apache Corp. (APA) may conclude talks this year on the sale of 85 percent of the [future] liquefied natural gas production from the Kitimat project in Canada, a company official said.
This article speaks of the recent rally in natural gas. However if you look at the shape of the curve, cal15 and beyond has actually declined over the past few weeks.
the natural gas curve for cal 15 has actually declined of late. the rally was located in the front.
PaulretiredinAR profile picture
For me, the value in this article was to confirm my understanding of the minimum likely price of LNG that could be shipped to the USA from the middle east and western Australia, to compete with USA produced gas. I assume liquefaction cost of $3/mmbtu and shipping cost of $2/mmbtu, which equals a total cost of $5 to USA even if the wellhead cost is zero. I think USA gas price will gradually rise to ~$7/mmbtu and stay near that annual price for decades to come (in 2011 $).

MexCom profile picture
Excellent comment. The price will never get high enough to make liquification profitable.

Another drawback is the security problem. I don't believe any major port facility would accommodate it. It would be a prime target for a terrorist.
The coal lobby. The chemical company lobby. They all want natural gas to stay cheap & underused. There will be no energy policy that uses natural gas while these powerful lobbyists have their way with out politicians.
Ferdinand E. Banks profile picture
Old Wizard, if there is one country in the world that is certain to use nuclear, that country is Japan. I wrote what I and some others thought was a very good article on nuclear, but which was not published in SA, and in which I described a walk across Vienna with a Japanese insider. (That paper is in 321 Energy and OilPrice.Com.)

He told me that burning uranium in LW reactors was a waste, and politically the time would come when the Japanese would be able to exploit breeder technology. I believe him, and I do NOT believe the physicist who told me that breeders were a dead letter.

Something else. In a decade or two the Chinese will be able to build standardized reactors in standardized plants, and sell them to Japan for the lowest prices in the world. I'm publishing a textbook later this year on energy economics, but I can tell now because of this German craziness that I made a mistake in not spending more effort to expand the nuclear discussion. Well...so what.
Moon Kil Woong profile picture
Even better would be if the US weould wake up and start mandating government use LNG fueled transportation like Asia and Europe. Who are we fooling, the government in the US is fat lazy and unenvironmental. Every other government is moving public transport to LNG which is cheaper and cleaner. The governments in the US are so fatthey don't care. Rather they complain that they must cut all your services instead of think a little on how to save and be efficient. The main reason the US is collapsing is that governments here (federal, State, and local) are eating all your money and wasting it.
suryan profile picture
there are countries already exploring fracking to release the nat gas they are sitting on, why will they buy from us? this is stupidity. the company issued more stock to raise capital which is why it fell 10% from the high's.

but looks like people are piling into this one, options look pricey dec 11 calls at 17 strike at 1 USD.
Civilization Type 1 profile picture
By the time the US is ready to start exporting LNG, there will be so many other countries doing the same it's going to flood the market and make it an economically marginal proposition, at best.
Stone Fox Capital profile picture
Clearly a game change but its so far out that one can't invest on it yet. The facilities might never be built.
In So Cal we use Nat Gas to create electricity, Edison shows TV commercials with a plug-in car.. but uses NAT Gas to make the power..
If the U.S. would create a comprehensive energy policy which includes natural gas for transportation as in Australia and other countries, we would change the trade deficit much more than exporting liquified natural gas. I find it to be so illogical as to be almost ludicrous for investment to go into exporting natural gas and not to invest in infrastructure and vehicle conversions which would result in more American jobs, less oil imports and less pollution.
Professor Banks, isn't the reaction to the Japanese nuclear problems an expected reaction. What is surprising is that a country like Germany which brags about its engineering prowess, should react in this manner.
Davewmart profile picture
'Carbon Sciences, Inc., a technology developer focusing on the conversion of carbon dioxide and methane to fuels, plans to produce samples of diesel fuel in an end-to-end process demonstration.'


This is up to 92% efficient and uses the carbon dioxide which is found in association with natural gas.
All a lot easier than converting a fleet to natural gas and compressing the gas etc.
MexCom profile picture
Nat. gas is economically worthless at the well head. Most of it world-wide is only a bi-product from oil production that is flared off. The only concession to the producer comes from the investment of infrastructure to capture it and pipe it to a market demand point - mostly home heating fuel.

Yes, this is something to contemplate for the future. But for right now in an investment market providing poor returns for an undeveloped demand point its not attractive to me.

My only holding was DOM a royalty trust that is only a speculation on rising Nat. gas prices. But this was sold off with the realization that prices will remain low with great additional supply coming on line.

This sector should be completely avoided, IMHO.
Ferdinand E. Banks profile picture
"...countries like Germany and China have phased out nuclear...". This is not only wrong but absurd. China might have a hundred nuclear plants in the planning stage. As for Germany, their government might have a slight misunderstanding about nuclear, like the misunderstanding Mr Hitler had on 11 December, 1941, when he declared war on the US.

Outside of that, this is an informative paper.
I concur with your statement Mr Banks re: Nuclear, China will build more Reactors and imo, Germany will not be able to stop the Nucs, we will see on that one..
allergic to loss profile picture
I agree prof. Also there will be several changes in government before all those plants are decommissioned in Germany.
EconMatters profile picture
The German cabinet agreed on Monday to plans for the nation to phase out nuclear energy by 2022.

William Taylor profile picture
Informative. Thank you.
Scooter-Pop profile picture
Domestic Producers that are Publicly Traded will likely NOT benefit from Domestic Exporting of LNG. The Shale Gas and Conventional Gas Reserves are VERY ABUNDANT in other parts of the World. The BIG World Wide Producers will see some benefit, long term. The USA has NO unique position in merchantable Nat. Gas reserve, but we have been the World's Innovator in Drilling/Stimulation Engineering! The best long term push for Domestic Natural Gas Price is T. Boone's initiative on converting from Imported Arab Oil to Domestic CNG (Our Reserves) as a Road Fuel.
dwprice profile picture
I agree with your point on road fuel, but I think you will find that the USA does have a unique position in commercially viable ng.

Though there are some international commercially viable shale gas plays, the vast majority of marketable shale gas is in North America. It will indeed will be a game changer here. Even without LNG export, we're sitting on energy independance with shale gas and shale oil. Eagle Ford, Bakken, Marcellus, these are game changing plays. Building infrastructure to utilize it will put Americans back to work with the right planning. See what China is doing while their economy is down? Building infrastructure.
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