Tuesday, May 22, 2012

"Will LNG Exports Rescue the North American Natural Gas Market? "

I would really prefer that we kept the gas, made chemicals and captured some of the value-added but I also understand the producers wanting to realize the $18 per MMBTU that the stuff is fetching in Japan.
Here's a slightly outdated chart of the differentials:

Europe Natural Gas Import Price  Chart

From Raymond James via Energy Tribune:
Editor's Note: This piece was orinally published in a brief by Raymond James
It wasn’t that long ago – as recently as 2008 – that people were debating whether the U.S. could build enough liquefied natural gas (LNG) import infrastructure to fulfill the needs of an undersupplied natural gas market. Now, of course, the problem is the polar opposite: what to do with North America’s massive and persistent glut of natural gas. Some solutions are essentially incremental and are visibly materializing, albeit less slowly than gas producers would want. This includes coal-to-gas switching by electric utilities and a rebound in gas-intensive domestic manufacturing (especially petrochemicals and fertilizer). Other solutions are more structural in nature and therefore more distant, such as a surge in natural gas vehicles (which we discussed in our Stat from May 14) and the development of a domestic gas-to-liquids industry (where Sasol is leading the way). In this Stat, we focus on what is probably the most high-profile – and controversial – outlet for excess North American gas. We are referring to the prospect of the U.S. and Canada becoming significant exporters of LNG. The earliest this could materialize would be late 2015, and it’s doubtful whether it will truly move the needle vis-à-vis the supply/demand balance before the end of this decade. That said, LNG exports could eventually be a game-changer for the North American gas market, presenting both opportunities and risks for energy investors.

20+ Bcf/d of LNG export projects on the drawing board… but how much will actually get built?
Believe it or not, the U.S. is already an LNG-exporting country. The Kenai LNG facility near Anchorage, Alaska, which started up in 1969, was, in fact, the second liquefaction plant ever built worldwide. It remains North America’s only liquefaction plant. Formerly a joint venture between Marathon Oil and ConocoPhillips, and since last year owned entirely by the latter, it was temporarily idled in November 2011 but may restart in 2H12. While Kenai represents a pioneering milestone in the LNG industry, at 0.19 Bcf/d it is obviously far too small to make a difference for either the global LNG market or the North American gas market.

One of the few projects in an advanced stage of development is Sabine Pass on the Louisiana-Texas border. Cheniere Energy has operated an LNG import terminal on this site since 2008, but since LNG imports are the last thing the U.S. needs these days, the company is working to transform the facility into a bi-directional hub, capable of importing as well as exporting LNG. The liquefaction component has been designed with maximum capacity of 2.8 Bcf/d, though the first phase, expected to start up in late 2015, would comprise only two trains rather than four. Final federal approval for the project was given in April.

Click to Enlarge

Thinking of building your own LNG plant? Read this first.
From what we’ve already written, it should be clear that you shouldn’t hold your breath waiting for North American LNG export plants to come to fruition. Sabine Pass is a useful case study of just how difficult and time-consuming it is to develop these projects. Cheniere’s original plan to develop liquefaction capacity at Sabine Pass dates back to June 2010. Nearly two years later, construction has not yet started – even though this specific project has the big advantage of having a well-developed site with existing LNG infrastructure. Let’s look at some of the challenges faced by North American LNG developers....MUCH MORE