Are US liquefied natural gas export terminals the next expensive flop in energy? Members of Congress are clamouring for faster approval of permits for terminals so US natural gas can reach across the globe. Yet the first US facility, built by Cheniere Energy, will not come online until 2015, having cost $10bn. Just a handful have received approval so far but more than 20 are awaiting word. While they wait, terminal backers should be nervous about the trajectory of gas prices.
With the latest approval in February of a terminal built by Sempra Energy, total export volume could be 8.5bn cubic feet a day. In a 2012 study by the US energy department, the highest volume of LNG exports envisioned was 12 bcf/day. The capacity of the facilities still in the approval queue: a whopping 30bcf/day (for reference the US is forecast to produce a total of about 80bcf/day by 2020).
An accompanying study from consultant NERA, found that US gas prices would rise, as would be expected assuming new foreign demand. But that rise was only about $1 per thousand cubic feet (mcf), leaving prices still near historically low levels. Prices in Asia and elsewhere are linked to the oil price benchmark that makes cheap US natural gas attractive. For example, Asian LNG spot prices were above $19/mcf last month. The puzzle, though, is how global prices will evolve over the next two decades. Worldwide LNG projects along with general shale exploration may lower global gas prices, diminishing demand for US exports. With infrastructure costs, exports to Asia and Europe are economical when US gas prices are $5 to $6 /mcf, a level they jumped to during this cold winter.
If the economic impact of greater gas exports is unclear for terminal companies, gas explorers however will still benefit from a (modest) bump in price. And chemical companies such as LyondellBasell, which have benefited from low gas prices for plastic making, should still find that prices for their gas-based “feedstock” remain profitable.
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