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Shales Heating Up Talk of U.S. as LNG Exporter

The surge of U.S. shale gas supplies has caused a large-scale rethink on liquefied natural gas (LNG) and the relationship of the U.S. gas market to that of the rest of the world. Those who used to watch U.S. shores for inbound tankers now wonder how soon and how many tankers will leave this country loaded with liquefied shale gas.

For years executives in the liquefied natural gas (LNG) industry have dreamed of fungibility, of market liquidity for LNG where tankers function as a sort of "movable pipeline." But when will that happen?

John Hattenberger, president of Gazprom Marketing & Trading USA, said when there are 400 LNG tankers on the water, the industry will have the liquidity it has long talked about. The widening of the Panama Canal won't hurt global LNG trade either, he said, noting that currently there are about 23 producers and 19 countries buying LNG worldwide.

Hattenberger was one of several panelists speaking on LNG in the context of the shale gas revolution taking place in North America at the Second Annual World Shale Conference and Exhibition in Houston Tuesday. The conference was sponsored by CWC Group.

LNG panelists generally were bullish on the prospect for exports of U.S. natural gas -- particularly that produced from shale plays -- as LNG. This was especially true of Cheniere Marketing Inc. President Davis Thames, as an affiliate of his company recently inked a deal to sell LNG to a unit of BG Group for export worldwide (see Shale Daily, Oct. 27).

"We have a couple more contracts to sign up, and then we'll be in a position to reach FID [final investment decision]," Thames said of the affiliate company's U.S. Gulf Coast liquefaction project at the existing Sabine Pass regasification terminal, noting that the second contract could be inked this month or next.

"The BG agreement was a real shot in the arm for LNG exports from North America, and I think it validated the concept..." Thames said. "They're a very large North American gas producer...They're really one of the larger natural gas producers in the United States..."

The willingness of BG to trade its exposure to Henry Hub prices for prices elsewhere around the world "is driven by the overwhelming belief that there's a lot of gas here in the United States," Thames said.

Just as abundant supplies of shale gas have inspired export schemes, they've lit a fire under the petrochemical industry in North America, which is betting on long and steady supplies of ethane from the natural gas stream, said the American Chemistry Council's Owen Kean, senior director of energy policy.

"Shale gas has dramatically changed the way the U.S. petrochemical industry is planning for the future," he said. With $15- 20 billion of new petrochemical industry investment announced in North America in recent years, the industry is spending money here at levels not seen in a generation, Kean said. The capital "in flight" to the United States is reversing a generation-long trend of money going the other way.

While things are looking good for industrial and other consumers of natural gas and natural gas liquids -- low prices and low volatility -- producers and traders will have their day again, said Michelle Michot Foss, chief energy economist at the University of Texas at Austin.

Volatility could return to the gas markets in one or two years, she said, noting the amount of switching from dry gas to oil and liquids-rich drilling the industry has seen. There's a "rough period" ahead if the most robust predictions for end-of-injection-season storage levels come true, she said. However, ultimately money will have to return to the production of nonassociated natural gas in two or three years to balance the market, she said.

According to Charles River Associates Vice President Christopher Goncalves, factors that will affect to what degree North American shale gas makes its way into world markets in liquefied form include:

"There is just a groundswell of new development in the LNG regas business..." he said, asserting that projects under way could add about 8.8 Bcf/d of incremental demand. Adding in the more speculative projects could bring the incremental demand increase to 20 Bcf/d or more. "The main reason is chasing the spread...the difference between oil and gas prices," he said.

"The biggest swing factor in this whole story is how much of this LNG demand gets built."

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