Posted on 08/05/2015 5:49:29 AM PDT by thackney
The Obama Administration is often accused of being sluggish in granting permits for projects to ship liquefied natural gas (LNG) to countries that do not have a free trade agreement with the U.S. Critics claim it has thus denied the U.S. a historical opportunity to become a leading natural gas exporter on par with Russia and Qatar. Whether ten approvals out of forty applications in four years is sluggish or not is a matter of perspective. But the debate on the pace of approvals has masked a much more important fact: American gas is no longer desired abroad, no matter how many permits are granted, and certainly not in Asia – the fastest growing market for gas.
Here is why: LNG prices in Asia are linked to oil prices; when oil prices were high Asian economies were forced to pay exorbitant prices for their imported gas. In the case of Japan where the Fukushima incident led to the shutdown of 54 nuclear reactors, at one point LNG prices reached almost $20 per one million British thermal units (mmbtu). During that time the North American fracking revolution unleashed a huge amount of gas into the market, creating a fantastic opportunity for the U.S. gas industry to capture the arbitrage between Asian and North American prices and export daily billions of cubic feet to foreign destinations. So promising was the LNG play that a 2014 report by Citi Group projected that the U.S. would become the world’s leading LNG exporter by as early as 2020.
But ironically the same fracking miracle that flooded the North American market with surplus natural gas also led to a spike in oil production and contributed to the fall in global oil prices. Since oil and gas prices are linked the collapse in oil prices led to an even sharper decline in LNG prices. LNG spot prices in Asia have recently fallen below $7/mmbtu, a level nearly one third of last year’s peak. While at the well head U.S. gas price –below $3/mmbtu – is among the cheapest in the world, when slapped with liquefaction and tolling costs the price could reach $9/mmbtu, no longer competitive in many markets including Asia. The slowdown in China’s growth, the European recession, the restarts of Japanese nuclear power plants, the rise in Australian LNG exports, the new gas pipelines China and Russia are planning to build in Siberia and the specter of Iranian gas entering the market once the sanctions are lifted all mean that in the foreseeable future America’s gas may not be attractive for most buyers.
With the dream of becoming a major player in the Asian market quickly fading the U.S. should consider alternative uses for its gas. America's immediate neighborhood, the Caribbean basin and Central American markets, could be the first markets for America's gas. Many of those countries - Granada, Jamaica, Barbados, Nicaragua and Cuba to name a few - still generate large portions of their electricity from oil products and their economies are susceptible to occasional oil shocks. The same is true for Puerto Rico which is effectively bankrupt and could benefit greatly from switching its power sector from oil to natural gas. But most of those markets are too small and too poor to justify the construction of LNG receiving terminals where LNG is re-gasified into dry gas that can power electricity turbines. For such regional markets the gas can be delivered in the form of low pressure Compressed Natural Gas (CNG) on board dedicated vessels. This way the gas can simply be shipped in its gaseous form without having to go through a costly and energy intensive conversion into liquid and then back into gas. Moving gas in CNG vessels would offer the U.S. gas producers new nearby markets while sparing the customers the need to invest billions of dollars in LNG infrastructure.
The second potential market for America’s gas is the transportation sector. While a large amount of gas is used for power generation, with important economic and environmental benefits, only one percent of U.S. natural gas is used as automotive fuel. This is a real folly. Even at the currently depressed crude prices North American natural gas is still three times cheaper than oil on an energy content basis. But despite the cheap price of our gas, the U.S. is home to only about 150,000 of the world’s roughly 18 million natural gas vehicles. In China, where natural gas prices are 3-4 times higher, gas is used much more widely in vehicles. A new report by the United States Energy Security Council reveals that though China’s overall vehicle fleet is half the size of America’s it has ten times more natural gas vehicles and twice as many natural gas refueling stations than the U.S. Furthermore, China is in the process of converting its vehicle fleet to run on methanol, an alcohol fuel that can be made from natural gas as well as coal and biomass. Indeed, though poor in gas China seems to be utilizing the resource better than the gas-rich U.S.
The answer to the North American gas glut isn't building multi-billion dollar LNG terminals along U.S. coasts with the hope of exporting gas to distant markets where it is no longer wanted. Promoting innovative approaches to exporting gas to our neighbors in configurations other than LNG and advancing fiscally conservative solutions to opening the transportation sector to natural gas-derived fuels are the only ways for U.S. natural gas producers to ensure that if they continue to drill for more gas there will be takers.
Based on your charts, I assume you disagree with this article? Also, Europe would love to get off Russian LNG.
My charts show the price claims of the article have truly changed that quickly.
I don't pretend I can predict future prices, too many factors can quickly change prices back the other way.
Cove point is desperately trying to get the permits needed to Export LNG. Building has started while they fight the legal battle. Up the coast BG&E has an LNG export site.
> “While at the well head U.S. gas price –below $3/mmbtu – is among the cheapest in the world, when slapped with liquefaction and tolling costs the price could reach $9/mmbtu, no longer competitive in many markets including Asia. “
The writer fails to include the fact that South Korea has offered to invest and carry all costs associated with building Liquefaction plants in Long Beach and Houston including providing LNG ships and all other attendant infrastructure. With such investment, the price can be further reduced by lifting regulatory costs on producers. As it stands now NG producers flare and burn off the excess; it is all wasted.
Donald Trump is right. US politicians are stupid and incompetent, and clueless when it comes to the art of the deal.
Let me say this, we have to be about $5/mmbtu cheaper in our Nat Gas Domestic price to ship out LNG. If the price differential remains that or less, it will be a losing business to export LNG.
They will not doing that for free. They may offer that to buy at current low domestic prices.
Very few places allow that to continue anymore. Even North Dakota has passed legislation that forces producers to get the produced gas tied in on an oil well or it will be shut down. It has been that way for quite a while now. Things have changed since decades past.
Of course.
Whether burned away or not, it is wasted. That is the point.
Could North Dakota be a model for how to reduce flaring?
http://trib.com/business/energy/could-north-dakota-be-a-model-for-how-to-reduce/article_441dd743-5cb4-5504-8d42-1934f2a852a3.html
...Alaska, Texas and Wyoming, by contrast, flared fewer than 2 percent of their production, according to the Western Organization of Resource Councils, a coalition of landowner groups across the West....
The strategy, implemented last year, sets a statewide flaring target, empowers regulators to curtail production if companies do not meet the state goal and calls on firms to submit plans for how they intend to capture gas before a well is drilled.
At the beginning of 2014, 36 percent of North Dakota’s production was flared. By year’s end that figure was 24 percent....
The state’s regulations allow companies to flare unlimited amounts for 15 days after a well comes online. A firm can apply for a permit to flare up to 250,000 cubic feet daily for the first six months. A second permit is needed after six months if firms are to burn off more than 60,000 cubic feet daily.....
The proposed pipeline between Russia and China is stalemated by the Chinese economic situation. I thought Cove Point was approved.
The wild card may be the NG fired combustion turbines needed to replace the coal fired power plants that the EPA is forcing utilities to close.
It is not being wasted, that is the point. You are talking about days past.
These are details. The bigger point is the industry could be developed to allow the USA to be the global advantaged exporter.
This is the reality, different from your claims.
The bigger point is the industry could be developed to allow the USA to be the global advantaged exporter.
It is being developed and increased. But it should only be done with private investment to meet market conditions. The only "help" from government is to keep regulations reasonable and not oppressive. Maybe that will turn that direction after 2016...
It makes sense for Qatar to liquefy and ship natural gas, at least for the time being, but not for the US. Eventually, even Qatar will will discontinue exports. Saudi Arabia and Kuwait are already short of natural gas for their petrochemical industry.
There’s plenty of US demand for domestic natural gas used in electric generation. If US natural gas is to be used for export, it’s more economic to convert it to more valuable products such as methanol, ammonia, and urea. That cuts out the absurdly large liquefaction costs inherent to exporting LNG, while adding value from manufacturing chemical products in the US.
I can understand why climate change alarmists would support a government policy to expand natural gas exports, since it would tend to equilibrate the natural gas and oil markets. That would tend to increase energy prices in the US while decreasing them in Europe and Japan. Greenies love to hate America.
The best policy is no policy: neither encourage nor discourage LNG exports. Let the industry players decide and take all the risk. However, there is no way that I’d invest in a company that plans large-scale LNG exports from the US. The capital costs and the operating expense are too high and the margins are too volatile.
‘Also, Europe would love to get off Russian LNG.’
???? Russia transports gas to Europe via pipeline, not LNG.
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