America’s Shale Gas Debuts in Global Trade

LNG carrier Asia Vision. Photo credit: Chevron

By Naureen S. Malik

(Bloomberg) — It’s official. The natural gas flowing out of America’s shale formations is now available to the world.

The liquefied natural gas tanker Asia Vision left Cheniere Energy Inc.’s Sabine Pass export terminal in Louisiana on Wednesday with the first cargo of U.S. shale gas, according to Sabine Pilots, the group that helps guide vessels through the region’s waterway. The tanker, carrying 3 billion cubic feet, is bound for Brazil.

The first U.S. export couldn’t have come at a worse time for the country’s gas suppliers. Low crude prices are weighing on the global LNG market, as contracts for the fuel are often linked to oil. A supply glut is also emerging as other countries including Australia ramp up export capacity while demand growth elsewhere slows. The worldwide surplus threatens to keep U.S. supplies swelling and domestic gas prices below $2 per million British thermal units.

“The bearish realities of this market are so big that this is like howling at the moon and expecting it to move,” said Jason Schenker, president of Prestige Economics LLC in Austin, Texas. “You are not going to get a big reaction.”

Natural gas futures fell 2.7 percent to $1.73 per million British thermal units, the lowest level since Dec. 18, by 11:55 a.m. London time Thursday on the New York Mercantile Exchange. Cheniere shares soared 10 percent to close at $33.62 in New York Wednesday.

‘Great American Story’

Cheniere didn’t immediately respond to a request for comment on the tanker pulling away. Sabine Pilots dispatcher Robbie Almond said by phone late Wednesday that the tanker was “heading offshore and will now go to its destination.”

The vessel was last seen sailing south in the Gulf of Mexico, according to ship-tracking data on Bloomberg.

The Sabine Pass terminal is a testament to the dramatic shift in the U.S. gas market over the past decade. It began as an import complex and was turned into an export site after hydraulic fracturing and horizontal drilling started unleashing more gas from shale formations than the U.S. could burn on its own.

“It’s definitely a big deal for North America,” Jason Lord, LNG analyst for energy data provider Genscape Inc., said by phone. “It’s going to make the U.S. into a net natural gas exporter in the coming years.”

Neal Shear, Cheniere’s interim chief executive officer, described the first cargo as a “great American story.”

“It’s really awe-inspiring,” Shear said in an interview with Bloomberg at the CERAWeek energy conference in Houston on Wednesday.

Petroleo Brasileiro SA, Brazil’s state-owned energy company, bought the first export at “market price,” according to the company. It said another tanker is scheduled to take a second shipment within days.

Chilling Gas

Cheniere’s Sabine Pass plant chills gas into a liquid, shrinking the fuel to 1/600th of its original volume, so it can be loaded onto tankers. Cheniere delayed the terminal’s first shipment from late January to perform wiring repairs. The company said in January that it can profitably sell LNG despite lower prices, though margins may be as little as $1 per mmBtu to Europe.

While initial export volumes will be small from the lower 48 states, the U.S. is joining Australia, Malaysia and Angola in expanding LNG production capacity by a total of 12 percent this year, according to Energy Aspects Ltd.

“It has been obvious for a while that it’s going to be an unpleasant price environment,” said Jason Feer, head of business intelligence at Poten & Partners in Houston. “The problem for everyone in the LNG business is that prices are already quite low.”

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