While the excitement mounts regarding the fate of a number of proposed U.S. liquefied natural gas (LNG) export projects, the CFOs of three companies with projects on the line said last week a good market exists among free trade agreement (FTA) nations, some in North America's backyard.
That is somewhat counter to the current industry focus on getting federal approvals for exports to non-FTA nations, which comprise a larger, albeit more distant, market. The trio of executives from Cheniere Energy Inc., Dominion Resources and Sempra Energy made their comments as part of a panel discussion at the Bank of America Merrill Lynch 2012 Power and Gas Leaders Conference.
Sempra Energy CFO Joe Householder said he is fully expecting to get U.S. Department of Energy (DOE) approval for exports to non-FTA countries, but if that does not happen Sempra could still build "one or two liquefaction trains" to export to South Korea, an FTA country.
"There are roughly 16 of the FTA nations, and the most interesting part of it is that some are right in our backyard," said Cheniere CFO Meg Gentle. Cheniere already has DOE authorization for both FTA and non-FTA exports from the Sabine Pass LNG project in Louisiana. "In the Caribbean nations that are FTA, they import a lot of oil to produce electricity so there is a tremendous incentive to switch off oil at current high prices."
She cited Puerto Rico as an example of a current LNG importer that could take a lot more gas. "The Puerto Ricans could save more than a $1 billion a year just by importing more natural gas and expanding their existing facilities. We have a transportation advantage into those markets over other LNG producers around the globe. Exporting to Asia is a long, long voyage, so exporting into the Caribbean countries is closer and improves our political ties. FTA gas demand is obviously very interesting and seems to be an easier process with the DOE."
FTA nations are covered in the existing U.S. Natural Gas Act, so exporting to those nations receives an automatic approval, said Gentle. DOE last week postponed the release of the second part of its study on the economic impact of exporting domestically produced LNG until year-end (see related story).
Dominion CFO Mark McGettrick said the global market is "very excited" about U.S. LNG prospects and his firm is in contact with two serious counterparties that are interested in obtaining and marketing gas through Dominion's Cove Point, MD, site, which he thinks will be the only East Coast export facility. Dominion plans to make a $2.5-3.5 billion investment in the export facilities once it receives final DOE approval.
McGettrick said he does not think all of the export projects will get built, but he feels Cove Point, along with the Cheniere and Sempra facilities, will be approved and built.
Householder said Japanese buyers have indicated that they would like to see some global supplies tied to Henry Hub prices rather than the exclusive tie of LNG to oil prices everywhere but North America.
"We haven't seen any change in behavior in LNG global market participants necessarily, but when I have been in Japan, certainly they have indicated that they would like to see more diversity of supply and pricing policies," Householder said. "Whether or not some of those contracts get rewritten we don't know; they may stay on an oil-indexed basis, but I think Japan and other buyers would like to see some Henry Hub-based pricing as well."
McGettrick said Dominion has always received a lot of interest in Cove Point, but what he has seen change more recently is the intense level of interest in the possibility of U.S. exports.
"A lot of the folks who need supply are getting worried about who are going to be the winners here [in the United States] on LNG and who is going to be shut out," he said. "We've seen a huge influx of interest from folks who want to get a piece of some of the early projects much more so now than six or eight months ago. They are trying to gauge who are going to be the winners in this first round, and they don't want to be left out, so they are very aggressive in terms of wanting to get a piece of the pie."
Gentle said the U.S. projects "will inject some additional supply into the global market, but as we've seen in the past (2007-2009) when there was about 10 Bcf coming on the market, the international market was able to absorb all of that gas in a short [three-year] period of time." She doesn't think the U.S. entrance in the market will necessarily force any changes in the operations of other producers around the world.
With output from most of Japan's nuclear reactors idled since the meltdown at the Fukushima Daiichi nuclear power plant and government officials proposing to phase out nuclear power by the late 2030s -- and with North American natural gas prices below $3/MMBtu -- the country's largest utility has entered into negotiations for North American LNG.
"It is true that we are in the stage of negotiation to secure liquefied natural gas supplies from North America," Tokyo Electric Power Co. (TEPCO) spokesperson Mayumi Yoshida told NGI, although she declined to give any details of the negotiations.
Japanese government officials recently announced a proposal to phase out nuclear power by the late 2030s, a major policy shift that ensures the country will need to rely on imported energy and could secure its position as the world's biggest importer of LNG. According to media reports, a cabinet panel of Prime Minister Yoshihiko Noda's government proposed to reverse plans to rely on nuclear power for 50% of domestic energy needs by 2030. On Wednesday the cabinet said it would take the proposal into consideration, but did not commit to the panel's recommendations.
The change in Japan's attitude toward nuclear power was sparked by the March 2011 meltdown at TEPCO's Fukushima Daiichi nuclear power plant (see NGI, March 28, 2011). Before that catastrophe, the country relied on nuclear power to meet one-third of its domestic energy needs. Only two of the nation's 50 nuclear reactors are currently operational, with the rest idled pending safety inspections by the government.
Canadian Minister of Natural Resources Joe Oliver last week concluded what he said had been a "successful" economic mission to Japan, which included an appearance at the Liquefied Natural Gas Producer-Consumer Conference in Tokyo. Canadian exports to Japan are vital to Canada's future prosperity, he said. Canada has several LNG export projects on the drawing board that would be located along British Columbia's west coast.
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