Methane Jane Elizabeth, a 145,000 cbm LNG carrier owned by BG Group, image (c) BG Group
By Christine Buurma and Chou Hui Hong
Oct. 1 (Bloomberg) — The U.S. natural gas boom is poised to go global as the government approves projects that will export the fuel to buyers from Tokyo to New Delhi.
Dominion Resources Inc.’s Cove Point terminal in Maryland won authorization Sept. 29 from the U.S. Federal Energy Regulatory Commission to ship liquefied natural gas around the world. It’s the fourth export project to win permission and the first outside the Gulf of Mexico. Construction will cost between $3.4 billion and $3.8 billion, Dominion said yesterday.
Advances in drilling techniques including hydraulic fracturing have pushed U.S. natural gas output to a record every year since 2011 and made the country the world’s largest producer. U.S. supplies will compete with cargoes from Qatar and Australia, two of the biggest exporters, shifting global movements of the super-chilled fuel.
“In our projections the U.S. becomes a significant LNG exporter, taking the bronze medal after Qatar and Australia,” Laszlo Varro, head of gas, coal and electricity markets at the International Energy Agency, said in an interview in Berlin yesterday. “As North American LNG flows to Japan and Korea, the Japanese and Koreans will buy less LNG from Qatar. Qatar will want to do something with that gas.”
Surging U.S. gas production from shale formations including the Marcellus deposit in Appalachia has sent prices tumbling 69 percent from a peak in 2008. Marketed gas output will advance 5.3 percent this year to an all-time high of 73.93 billion cubic feet a day, according to U.S. Energy Information Administration projections.
Cheniere Energy Inc. is set to be the first company to export gas produced from the U.S. shale boom. The company’s Sabine Pass export terminal under construction in Cameron Parish, Louisiana, may ship its first LNG cargoes to overseas customers as early as next year, the company has said.
BG Group agreed to buy about a third of the annual 16 million tons of LNG from the Sabine Pass terminal, which also sold the fuel to companies including Korea Gas Corp., Gas Natural SDG SA and Gail India Ltd., Cheniere said.
Asia is a prime market for low-cost U.S. supplies, with LNG demand for the region set to climb about 36 percent from 2013 to 2020, according to Rafael McDonald, director of global gas and LNG at IHS CERA, an energy consulting company in Cambridge, Massachusetts. Asia consumed 75 percent of the world’s LNG last year, data from the International Group of Liquefied Natural Gas Importers show.
A U.S. LNG cargo sent to Japan today would cost about $10.50 per million British thermal units, including marketing and transportation costs, McDonald said by phone yesterday. Japan paid an average of $15.58 per million Btu for shipments from Australia in June, government data show. LNG into northeast Asia was little changed at $14.70 in the week ended Sept. 29, according to the Energy Intelligence Group’s World Gas Intelligence publication today.
Sumitomo Corp., Japan’s third-largest trading house, and Tokyo Gas Co. will buy gas from the Cove Point terminal under 20-year contracts. Japan’s LNG imports jumped to a record after the 2011 meltdown at the Fukushima Dai-Ichi nuclear plant.
“Asia is the growth market,” McDonald said by phone yesterday. “U.S. LNG will bring security of supply and diversification of supply sources for the region.”
India is building LNG receiving terminals in anticipation of U.S. cargoes, R.K. Garg, finance director at Petronet LNG Ltd., India’s biggest importer of LNG, said by phone yesterday.
Gail India Ltd., the nation’s largest gas distributor, said in June that it is offering LNG supplies from the U.S. tied to the American benchmark as an alternative to its oil-linked contracts. Asia’s LNG contracts traditionally are tied to oil, making them vulnerable to increases in crude prices.
U.S. exports may also be destined for Europe, especially if severe winters cause prices to jump, McDonald said.
North American LNG exports to Japan and Korea may displace supplies from Qatar, prompting Qatar to divert cargoes to Europe, the IEA’s Varro said.
“U.S. LNG will definitely lead to a more competitive and more saturated European gas market, even if the actual quantities in Europe will not be very large,” he said.
Worldwide, LNG trade will rise by 40 percent to 450 billion cubic meters (16 trillion cubic feet) by 2019, the IEA said in its medium-term gas market report in June.
U.S. LNG exports will probably climb to about 8.5 billion cubic feet a day of gas in 2020, IHS CERA’s McDonald said, or about 1.8 percent of global demand.
While the U.S. won’t begin exporting gas until late next year, the prospect of rising North American supply is already having an impact as the market anticipates increased competition, Catriona Scott, a London-based senior energy analyst at Interfax Europe Ltd.’s Global Gas Analytics, said by phone yesterday.
“You have suppliers like Qatar looking to balance their portfolios and positioning themselves to be able to offer Asian buyers much more flexible supply options from a pricing perspective,” Scott said. “This will be another step in that change.”
–With assistance from Anna Shiryaevskaya and Isis Almeida in London, Debjit Chakraborty in New Delhi and Yuji Okada in Tokyo.
Copyright 2014 Bloomberg.
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