Undeterred By Global Glut, US Pushes Ahead On LNG Exports

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“Nobody really is making money from LNG now.”

By Andrew Topf, Oilprice.com:

More liquefied natural gas (LNG) will be leaving the U.S. come the New Year, even though the market for the chilled gas bound for export markets is softening.

As production from U.S. shale gas fields ramped up in recent years, including the monster, mile-deep Marcellus basin, which alone produces 113 billion cubic meters (bcm) a year, the same as Russia’s exports to Europe through three pipelines, there seemed to be a grand opportunity to take advantage of the increased production by shipping gas overseas. Developers initiated large capital projects to build LNG export plants in the United States, including Sabine Pass, Cameron LNG, Freeport, Coos Bay, Lake Charles and North Slope, Alaska.

Then came the oil price collapse, and with it, the price of LNG. LNG rates have also been hurt by declining demand in the key import markets of Japan and China. Oilprice.com reported recently that Japanese LNG imports were down by a third between April and September. The return to nuclear power in Japan is also troubling for the LNG sector. In China, the great hope for LNG exporters, imports are also down, by 3.5 percent this year, with the country showing signs of a gas glut.

In fact according to the International Energy Agency, the LNG market is expected to be oversupplied for some time to come, due to fewer buyers than sellers: “[T]here is also an increasing share of gas available on a short-term basis,” and the “net result over the next few years is expected to be that significant volumes of gas will be looking for a home, at a time when lower oil prices are keeping down the price of oil-indexed gas sold under long-term contracts and when large new LNG plants are scheduled to start operation,” states the IEA.

Meanwhile, LNG tankers are lining up in Louisiana.

In January, Cheniere Energy’s Sabine Pass facility will be the first to export gas from U.S. shale fields. The company expects to add a new production train every six months until mid-2019, with the seven total trains accounting for around half of the 65 million tons of annual LNG export capacity under construction in the United States. Most of Cheniere’s LNG has already been sold through long-term contracts, with French energy company Engie (formerly GDF Suez) and rival EDF both signing supply agreements.

Along with Sabine Pass, another three LNG plants are slated to be approved by the U.S. government. They have been a long time coming. The Obama administration has not been quick to approve new LNG export terminals, partly because it does not want to lose the advantage that low-cost gas affords industry that uses gas as feedstock. The Daily Telegraph reported that “a corridor from Houston to New Orleans has attracted 33 petrochemical plants worth over $1 billion each since 2011.”

However the administration believes that the country has such a big lead over industrial competitors in Europe and North-East Asia, the latter where gas is four times more expensive than in the U.S., to worry about LNG exports to those regions bringing down the price of gas and eating into U.S. market share, according to The Telegraph.

While the regulations around natural gas exports in the United States can be cumbersome, The Brookings Institute pointed out that not a single project so far has been rejected.

Another reason for less enmity toward LNG exports – whose opponents say that pushing more U.S. gas out of the domestic market for export will raise prices and hurt those businesses that buy it – is more political. Recent aggressive moves by Russia against Ukraine, through which Russian gas travels to markets in Europe – is making the export of U.S LNG an important geopolitical lever to contain Russian ambitions. Last year at the economic summit in St. Petersburg, Russian president Vladimir Putin warned that U.S. shale is changing the international political order. The Telegraph notes that any future American cargoes of LNG would erode Gazprom’s pricing power in Europe. The EU already has a large network of import LNG terminals, with an increased total gas capacity of 221 billion cubic metres by 2016.

On the compressed natural gas (CNG) side, the Obama administration is also opening up opportunities for exports. Last month the Energy Department gave the green light for Emera, a Canadian company, to export North American CNG to countries that do not have a free trade agreement with the United States. (Federal law requires approval of natural gas exports to countries that do have an FTA with the U.S.) In the Emera case, the Energy Department said the export of 0.008 billion cubic feet per day of natural gas for 20 years would “not be inconsistent with the public interest.”

The last, and perhaps most interesting question, though, is why would companies want to export LNG or CNG in this low-price environment? Bloomberg recently quoted Zin Smati, the president and CEO of Engie, as saying that the landing prices in Asia are currently too low to make profits.

When the gap between LNG prices in Asia and the U.S. was over $14 per million BTU, there was plenty of room to make money. Now that the spread is less than $5, it doesn’t make a whole lot of sense, says Smati.

“You cannot ship gas from the United States anymore,” he said at an energy conference in Houston in September. “Nobody really is making money from LNG now. Certainly we are not.” By Andrew Topf, Oilprice.com

The price of oil is now a function of OPEC’s Battle and Cheap Money. Read… Why the Price of Oil is Doomed for Longer than Expected

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  15 comments for “Undeterred By Global Glut, US Pushes Ahead On LNG Exports

  1. michael
    December 1, 2015 at 9:11 pm

    The economy is beginning to look like my wife’s favorite show “the walking dead.” Someone needs to to take it out to the shed like old yeller.

    • polecat
      December 1, 2015 at 9:38 pm

      er…..you meant old yellen , did’nt you?

      • Bob Kranz
        December 1, 2015 at 10:48 pm

        Good one Polecat

  2. MC
    December 2, 2015 at 2:52 am

    You think the glut in natural gas is bad, just wait a couple of years.

    Kazakhstan, already a major exporter, is about to add a lot of extra capacity and Iran, with its enormous reserves, will re-enter the market.
    And this is to say nothing of all the smaller projects now too advanced to be stopped or scrapped, like Israel’s new gas fields off the coast of Ashkelon.
    In short the pressure on wholesale NG prices will continue to be downward, because short term demand simply won’t keep up with supply. Very soon every single producer will be selling at cost or at a loss, but will have to continue pumping. Think “fracking” but with much much larger numbers.

    Now, this doesn’t mean you and I will be paying any less for heating. Wholesale prices at Zeebrugge (the benchmark for European NG prices) are down over 20% year on year but utility bills continue to creep forward. “Somebody” is getting fat in the middle.
    One can only imagine what would happen if we hadn’t “deflationary pressures”.

  3. Nicko
    December 2, 2015 at 5:39 am

    Who cares if it isn’t profitable, I love the irony the US will beat Russia at it’s own game, by flooding EU with cheap LNG.

  4. Dan Romig
    December 2, 2015 at 6:22 am

    LNG ought to be used in the US for fuel in semi-trucks to replace diesel.

  5. DV
    December 2, 2015 at 6:23 am

    The gas prices under oil-indexed contracts in Europe are already lower than theoretical break-even point ($7-7.5 btu) for the US export LNG. The two countries with new LNG terminals (Poland and Lithuania) are already looking for ways to re-negotiate supply contracts or redirect shiments as their brand-new LNG terminals are heavily loss-making. If US LNG is going to displace someone’s gas, it is not going to be Russian gas, but rather that coming from Norway, North Sea and Quatar. The facts unvariably overlooked is that the US shale gas would typically have 30% to 40% less heat content than Russian gas and that supplies of Russian gas can be varied on two-days’ or even one-day notice.

  6. Nick Kelly
    December 2, 2015 at 11:10 am

    If the US is drowning in cheap gas, as is Alberta, why are we still using coal to generate electricity?
    Looking forward, if this electric vehicle thing has legs, there is no way the present grid could handle the load.
    So if we are serious about clean air- and not just talking- we could benefit from using nat gas for electricity and electricity for transportation.

    • Nicko
      December 2, 2015 at 12:01 pm

      I thought the NDP in Alberta had a plan to phase out coal, and convert to natural gas?

      • Paulo
        December 2, 2015 at 2:09 pm

        They do Nicko. And when they do it will add to the complaints already heaped on the NDP. The Cons rode the oil boom into the ground and did not feel it necessary to plan for a downturn. Fed up, the electorate voted in the NDP after the price downturn was well entrenched. Now, the uninformed are blaming the NDP for the deteriorating economy. Phase out coal and shut down some mines, and voila…the death knell sounds.

        All this is taking place in an atmosphere where the world is looking for doable alternatives to Fossil Fuels.

        Things are definitely not loooking up for Alberta.

        My son, who got out of the oil patch two years ago and formed his own electrical company, recently showed me a facebook posting with a picture of Harper sipping a coffee at Tim Hortons. The caption was, “Miss me yet”?

        Unbelieveable ignorance.

        • Nick Kelly
          December 2, 2015 at 6:09 pm

          We live in a very decentralized federation. Quebec is in some ways already a separate country- own immigration policy, own pensions but all within law.
          The concentration of Alberta’s ‘eggs’ in the energy patch predates Harper’s government, and was an Alberta decision.
          BTW: the big ‘favor’ Alberta has done, especially for the West, is drive all public sector settlements through the roof, as the arbitration industry relentlessly uses the highest settlement as the new baseline.
          You hear about all the layoffs in Alberta- you don’t hear too many public sector.
          Notley is going to have a heck of a time dialing that back.

  7. Kam
    December 2, 2015 at 2:08 pm

    But I thought Christie Clarke was going to take over the LNG market- now you’re saying a couple of bit players like the U.S. and Russia have the temerity to challenge her. Some cheek.

    • Paulo
      December 2, 2015 at 2:15 pm


      I sent on some facts to Vaughn Palmer and Keith Baldry about the worldwide glut of NG, along with an article saying most LNG plants will never be built. No response. No one ever mentions this, or talks about the Quicksilver Resources scam in Campbell River….by a company in bankruptcy.

      And now, the natives are proposing an LNG plant in Bamberton, despite the fact there is inadequate supply to compress and sell.

      I could cry. Incidently, each BC participant in the Paris Climate talks added about 2 tons of carbon to the atmosphere in air travel alone. Quite the junket and photo-op.

  8. jhm
    December 3, 2015 at 9:59 pm

    So why should Asia be willing to pay more than $5/MMBTU for LNG? At that price the cost of fuel for a gas combustion turbine plant is about $58/MWh. That’s just for fuel. The fully loaded cost of new solar beats the cost of LNG. Wind, where it is abundant, is even cheaper than solar.

    This is not a glut. Wind, solar and soon batteries are pricing LNG out of the global market.

    • Nick Kelly
      December 5, 2015 at 4:40 pm

      At the moment there is no large scale cost- effective way of storing electric power. The most efficient methods convert it to mechanical energy. Pumping water up hill is one way, just being tested is a rather strange sounding Canadian scheme that uses electricity to inflate large balloons underwater. When power is needed the pressure of water forces the air back through a turbine.

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