Skip to comments.US gas exports will grow but won’t change markets, CEO says
Posted on 03/05/2014 12:12:28 PM PST by thackney
U.S. tankers carrying cheap natural gas will ride a massive wave of demand to Chinese shores in coming years, but they wont unshackle the high price Asia pays in the global gas trade from oil indexes, energy executives said Wednesday.
And analysts predicting wholesale changes in global LNG markets such as widespread adoption of cheaper pricing and more flexible supply contract terms are likely to be disappointed, even after the advent of bargain-priced American liquefied gas exports, BG Group CEO Chris Finlayson said during a panel on the third day of the massive IHS CERAWeek energy conference in downtown Houston.
The fundamentals which drive LNG prices wont change, Finlayson said. Supply and demand for new long-term contracts will set the price.
Theres a consensus among information wheelhouses like IHS, he said, that demand for LNG exports will grow at twice the speed of natural gas overall in the next few decades which itself is slated to surpass coal as the second-most utilized natural resource in the energy industry by 2020.
Demand for LNG is expected to grow about 5 percent per year through 2025, adding 400 million tons of natural gas to global trade markets. But for that to happen, the industry will need to build an extra 120 million tons of export capacity which would roughly cost $400 billion in capital investments. That hurdle defies predictions of oversupply in global gas trade markets, and it assumes that export growth from the U.S. alone wont be enough to meet the massive demand.
You look at that $400 billion in capital its got to come from somewhere, it has to be financed by somebody, it has to provide a return, and it has to be backed up by contractual requirements, he said. We still see supply rather than demand as the constraining factor through 2025.
And Chinese buyers expected to be the biggest LNG consumers in coming years will pay what they can get for natural gas, he said, not because it makes sense in terms of cost, but because the countrys populace is being poisoned by air pollution caused by their massive coal resources used in power generation.
In recent years, those buyers have shifted their focus to driving down costs, diversifying their portfolio of natural gas suppliers and more flexible contract terms offered by American gas shippers. Over the past decade, flexible-contract volumes of exported gas have grown from 4 percent to 17 percent of the whole market. But that wont be enough to change the game: The use of international oil indexes to set the price of natural gas is far from dead, he said.
Asian buyers want Henry Hub prices from the U.S. but they dont want to be dependent on it, just as they dont want to be dependent on any other source or any other pricing, Finlayson said. We expect that markets will remain differentiated in pricing mechanisms and pricing levels.
I would rather have the jobs (and even taxes) here in the US and capture some of the market that would otherwise be supplied by Russia and the Middle East.
LNG export results in more natural gas liquids processed out in the US. More ethane, propane etc produced domestically.
I agree; I don’t want the United States turned into an “extractive economy” where all we do is provide the natural resources for use by Chinese industry. That’s the model for economic dependence and not for prosperity.
Keep the gas here, keep the industry here, keep the jobs here.
Neither do democrats, but then it is six of one and a half dozen of the other.
LNG is not cheap relative to the price of “raw” natural gas. There will be quite a financial incentive to build the processes in the US and eliminate the liquefaction, transportation and vaporization cost.
Dominion Cove Point is one of the facilities and is scheduled to come online in 2017, unless the Gaia worshipers delay it further. So far it looks like a go.
So do you see it more likely we become exporters of bulk plastic feedstock, for example?
Not just feedstock but product as well.
There are several ethane crackers and the like coming on line the next couple years.
It cost $3~5/MMBTU to go to LNG, transport and back (depending on distance, etc)
Since we are the supply for the feed and the demand for the product in mostly automated processes, we will have significant economic advantage.
But methane is not a major component of the plastics. It is mostly the natural gas liquids like ethane and propane that get converted to items like polyethylene and polypropylene.
LNG is straight methane. Those NGLs come out in the liquefaction process, if not separated already. Exporting LNG (pure methane) results in increased supply of NGLs domestically. Some will get exported as well, until our petrochemical industry catches up. They don’t want to build prior to a decent supply.
How, in your opinion, will LNG exports to the Chicomms affect our trade balance? This could be a sweet deal for the US if we get the right leadership in DC.
If we export, our trade balance improves.
I'm probably missing your actual question.
“I’m probably missing your actual question.”
Sorry, my fault. I’m asking you about dollar measurements. For example, according to the latest reports I read, Gazprom intends to start charging Ukraine around $400 per 1,000 cubic metres for its gas.
I’m not familiar with how much LNG costs - in dollars.
Natural Gas Prices
But how much can be exported is a huge question, permitting, building facilities, etc...