Some time ago, the North American shale gas surprise gathered enough momentum to turn liquefied natural gas (LNG) tankers bound for the United States around, sparking a frenzy to construct liquefaction and export capacity on U.S. and Canadian shores. A "big flood" of LNG is on its way in the next several years, an industry veteran told NGI.
John Hattenberger, who recently resigned as president of Gazprom Marketing & Trading USA to start his own consulting business, admits to having been taken by surprise by the shale gale. It was only four years ago that Gazprom was eyeing the United States as an attractive gas market (see NGI, Oct. 19, 2009; Oct. 5, 2009). Then at the end of 2011, Hattenberger was considering North America in a whole new shale light (see NGI, Nov. 14, 2011).
There used to be too many U.S. LNG projects seeking to import; now there are too many seeking to export, Hattenberger said this week. "That's how we roll as an industry."
What happens next will depend upon whether the U.S. Department of Energy (DOE) attempts to limit the amount of LNG exported in some way, Hattenberger said, and also on how many export projects ultimately end up securing contracts. Projects that seek to add export capability to existing regasification terminals have the best prospects, he said. "I think most of those will get built."
In Western Canada, Hattenberger -- whose new Houston-based firm is called Global NatGas Advisors LLC -- said he thinks two projects will probably come to fruition. However, development has moved more slowly there than many expected. "It's been disappointing, I think, for the whole industry that they've moved as slowly as they've done. I think that's going to be a disadvantage in the future," he said, adding that faster-moving U.S. projects could leave Canadian efforts wanting for contracts. "I think we're going to see a big flood of LNG in the '16, '17, '18 time frame. They'd better get on their horses and get going."
As for plans to pipe Alaska North Slope gas and then liquefy it in southern Alaska for export to Asian markets, that's an even tougher way to go, Hattenberger said. "I just think the resource, while it's huge, it's got too much to overcome in terms of environmental, costs and distance," he said. "You'd think at some point you'd be able to make a deal out of that...You never say never...There's just too many hurdles up there."
In the meantime, North American gas-on-gas competition has been spreading to Latin America, but in global LNG markets, oil-indexed pricing isn't going away, Hattenberger said, due to the number of long-term contracts indexed to oil.
"That's a huge amount of inertia contractually," he said. "It will take many years, if ever, to convert to something else. Frankly, if I'm a gas buyer in Japan or Korea looking across the globe to prices in North America, I think it doesn't make much sense to them, primarily because that U.S. price is driven mostly by domestic supply and demand. So what happens in the U.S. doesn't impact behavior of buyers in Korea, and it shouldn't.
"I'm not a huge proponent of the Henry Hub taking over the world...I just don't think that's going to happen. It's obviously creeping into contracts now, but if you think about it, the only reason it's creeping in is not because it's inherently obvious or has some sort of market-driving behavior in Asia, it's just the fact that the prices are lower."
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