There is money to be made in exporting liquefied U.S. natural gas, but not as much as many might think, or as consistently as some might hope, according to an analysis by Raymond James & Associates.

Exports of liquefied natural gas (LNG) from the United States will happen and be a viable business, analysts at the firm said in a note. They expect 5-7 Bcf/d of U.S. LNG exports by the end of the decade. And, of course, that’s because natural gas costs so much more elsewhere.

“…[A] good rule of thumb currently is that European natural gas prices are at least two times higher, and Asia-Pacific (Japan, Korea, China) natural gas prices are at least three times higher than U.S. natural gas prices,” analysts at Raymond James said.

However, liquefaction, shipping and other ancillary costs must be factored in to the arbitrage equation. “We estimate that when these costs are added to the price of Henry Hub gas, the all-in cost of U.S. delivered LNG increases by up to $4 to $10 per MMBtu,” the analysts said, adding that there is still support for significant expansion of U.S. liquefaction capacity under current market conditions.

But when all costs are factored in, U.S. LNG exports to Japan would not have been cost-competitive for one of the last three years: the period from June 2010 through May 2011, the analysts said.

The economics for brownfield liquefaction and export projects are better than those for greenfield (brownfield liquefaction fees of $2-3/MMBtu versus $3-4/MMBtu for greenfield projects), the analysts said. And exports to Asia are more attractive than exports to Europe.

“While the hypothetical U.S. LNG exporter would have captured an approximate $6-7 per MMBtu spread during peak demand seasons by shipping to Asia, European spreads topped out at about $2 per MMBtu,” the analysts said. However, that doesn’t rule out the possibility that Europe could become more competitive in bidding for LNG volumes over the coming years.”

The Raymond James analysts wrote that they expect the traditional oil-indexed pricing for LNG in Asian markets to largely remain, despite efforts to develop a regional gas import hub in the region. This means that the price of oil, rather than the price of natural gas, will be the main determinant of whether LNG exports from the United States are economic, they said.

“Unless Henry Hub prices were to drop back to the decade-low levels of 2012 — a scenario which we emphatically do not envision — Brent [crude] needs to be at least $90/bbl (and preferably triple digits) for U.S. LNG to be economically viable,” the analysts said. “For the record, we project that Brent will average $85/bbl in 2014 and $95/bbl long term.”

However, netbacks are not everything. LNG supplies from the United States and Australia enjoy favor among buyers seeking to diversify their supply sources, the analysts said. In Central and Eastern Europe, gas buyers want alternatives to gas from Russia, and Asian buyers want to reduce their exposure to supplies of gas from the Middle East.

Raymond James also named the U.S. and Canadian export projects it sees as the most likely to advance to completion by the end of the decade. They are Cheniere Energy’s Sabine Pass project, now under construction (see Daily GPI, March 7); the Elba Island LNG terminal in Georgia (see Daily GPI, Jan. 29); the Kitimat LNG project of Chevron Corp. and Apache Corp. (see Daily GPI, Dec. 26, 2012); Cove Point LNG in Maryland (see Daily GPI, April 19); and the Freeport LNG terminal in Texas, which recently received U.S. Department of Energy authorization for non-free trade agreement country export (see Daily GPI, May 20).

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