Added LNG receiving terminal capacity coming on line over the last year "makes the United States a "gigantic gateway" for global LNG trade, according to the head of Gazprom's U.S. marketing/trading operations, John Hattenberger.
With the right prices North American LNG imports eventually will grow, and the new array of receiving terminals gives it more options. The Russian natural gas giant, which opened its Houston-based North American energy trading operations Oct. 1, intends to be an active physical and financial gas player throughout the nation (see NGI, Oct. 5). The question of how much, if any, gas some of these new receiving terminals will process is not critical, said Hattenberger, Gazprom's president for North American operations. The important point is the added receiving capacity.
"The door open to the U.S. LNG market is bigger than it has ever been," said Hattenberger, noting that when all the capacity is in use, LNG could satisfy about 25% of the total U.S. gas demand.
For now, however, even Gazprom is choosing not to send LNG shipments to North America, Hattenberger said in a keynote address at the LDC Forum in California. Everywhere in the world except the United States and United Kingdom LNG prices are tied to crude oil, and at $70/bbl in the Far East, LNG would be $10 -- way too high for North American markets to compete. Thus, Gazprom's initial supplies from Sakhalin that began flowing earlier this year are going to Asian markets, he said.
"Pricing for LNG is not universal; the entire world has not gone to a common gas price yet, and some people speculate about whether it will ever happen," Hattenberger said. "I personally don't think it will ever happen in my lifetime." He said prices for LNG are set basically by Henry Hub in the United States and at the National Balancing Point in the United Kingdom, while the rest of the world uses oil prices. There is also a fourth price, or spot price, for LNG.
"So there are a lot of arbitrage opportunities in the world with LNG," he said. Gazprom's Sakahalin II LNG production facilities developed in conjunction with Royal Dutch Shell are now fully operational, according to Hattenberger, who said eventually Gazprom's 10% supply interest (125 MMcf/d) will go through Sempra Energy's Costa Azul receiving terminal along the Pacific Coast in North Baja California, Mexico, and once regasified, it will be shipped through Sempra's North Baja Pipeline to markets in Southern California.
"We haven't brought a cargo in yet since U.S. prices have not been favorable, so rather than take $3 or $4 for the gas, we've shipped it to the Far East," he said. "But with 20-year contracts, eventually we expect to be shipping LNG here."
"Why are we in the marketplace here?" Hattenberger said he is asked that question all the time. "The answer is we have supply," he said, adding that in some cases Gazprom is already doing swaps with operators in Western Europe who have supplies in North America. "Our goal is to continue to build on the platform we have already built in North America. We intend to be a physical supplier all across North America through swaps and LNG."
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