As China works to reduce its reliance on coal and looks to a cleaner energy future, the role that U.S. liquefied natural gas (LNG) could play in the market is huge. But for now, the U.S. LNG industry is in disarray and offers as much risk as opportunity, according to a U.S.-based PetroChina executive.
PetroChina International (America) Inc.'s Keo Lukefahr, general manager for North America natural gas, said her company is actively seeking long-term partners to supply LNG. The role for U.S. LNG in the Chinese market could be 2 Bcf/d, she said. But during a presentation at the World LNG Series Americas Summit in San Antonio on Tuesday, she was candid about the shortcomings she sees in the U.S. LNG industry.
"What does U.S. LNG development look like today? It's chaotic, highly unpredictable and speculative..." she said. "It really ought to be low-drama, non-speculative, bilateral back-to-back long-term deals."
PetroChina is the publicly listed arm of the China National Petroleum Corp. Lukefahr said the U.S. industry is approaching development from an "infrastructure forward perspective" when it should be more customer-oriented.
"An infrastructure-forward perspective is really challenging for us [in China]," she said. "There's a choice that the U.S. LNG market has. You can continue to go down this speculative LNG development route where developers and producers are trying to capture incremental value across the lifecycle...or you can go down the path of securing a long-term, high-quality stable rate of return from wellhead to destination."
U.S. producers and other energy players have pretty much succeeded in convincing markets of the staying power of U.S. shale gas supplies. At the other end of the value chain are markets, and China's is a big and serious buyer of LNG that offers a large, long-term market, Lukefahr said.
The Chinese government anticipates boosting the share of natural gas as part of total energy consumption to around 8% by the end of 2015 and 10% by 2020 to alleviate high pollution resulting from the country's heavy coal use, according to the U.S. Energy Information Administration (EIA). Consumption in 2012 rose to nearly 5.2 Tcf, 11% more than the 4.6 Tcf in 2011, and the country imported nearly 1.5 Tcf of LNG and pipeline gas to fill the gap, EIA said in a report earlier this year.
"Although the majority of gas consumption stems from industrial users, (48% in 2011, according to PFC Energy) the shares of gas consumption in the power, residential, and transportation sectors have been rising over the past decade. EIA projects gas demand to rise to 7.8 Tcf in 2020 and to more than triple to about 17 Tcf by 2040, growing by an annual average rate above 4%," EIA said.
Chinese companies are participants in projects to export LNG from British Columbia (see Daily GPI, April 29; April 25). China is looking for supply diversity as well as supply. British Columbia can provide that, but so can the United States; however, "we need long-term, reliable supplies. We need confidence," Lukefahr said. "We also need predictable commodity prices; long-term offtake agreements, 20 years or more with upstream producers; we want that as well. And, of course, [we want] long-term tolling agreements for liquefaction..."
Around the world, U.S. companies are routinely seen as potential counterparties that are based in a country that suffers from little political risk. But that's not so much the case with LNG.
In the United States, "political uncertainty" is high when it comes to LNG exports, Lukefahr said. The prime example of this cited by multiple speakers at the San Antonio conference is the U.S. Department of Energy's proposal to shake up the export license review procedure (see Daily GPI, June 4; May 29).
PetroChina wouldn't mind going all the way back to the wellhead to get what it needs, but right now the link between U.S. supply and China's market -- LNG -- is a wild card.
"We're happy to own that entire asset value chain," Lukefahr told NGI. "If you look at the U.S. LNG industry right now, you're in a development frenzy. You've got 25 projects...When you see that amount of projects going on, you have a potential risk of an overbuild. If we were really able to have projects that were fully robust and fully thought through from upstream all the way to the downstream, there's great opportunity here."