With plans for three North American liquefied natural gas (LNG) export terminals in various stages of development, analysts at PIRA Energy Group have factored "modest" LNG exports into the firm's long-term outlook. However, numerous challenges must be overcome before the first LNG export tanker sales from Western Canada or the U.S. Gulf of Mexico, they said in a recent research note.
In the running are two LNG export projects proposed for existing import terminals on the Gulf Coast and the Kitimat LNG project proposed for Bish Cove in British Columbia. Kitimat just filed with federal regulators in Canada for its license (see Daily GPI, Dec. 13).
On the Gulf Coast, Cheniere Energy Partners LP was the first to propose exports -- these from its Sabine Pass terminal in Cameron Parish, LA. Lately Cheniere has been touting talks with several potential customers, including large utilities in China and Spain (see Daily GPI, Nov. 30). Also proposed for the Gulf is liquefaction and export from the Freeport LNG terminal on Quintana Island in Brazoria County, TX, by Freeport LNG and Macquarie Energy (see Daily GPI, Nov. 23).
"If these projects end up getting developed, they would be the first LNG export terminals in the continental U.S. and the first U.S. LNG export terminals built in over 40 years since the Kenai facility in Alaska [see Daily GPI, Jan. 6, 2009] came online in 1969," PIRA said.
PIRA said it expects the Kitimat project to come online in 2014 and reach 0.7 Bcf/d of activity in 2019. Being on the West Coast, the Kitimat project is closer to Asian markets than the Gulf Coast, the analysts noted, but its associated 300-mile pipeline to Canadian gas fields helps to even the score with the Gulf projects, which would be backed up by Texas and Louisiana gas shale plays. Expansion of the Panama Canal, expected to be completed in 2014, would help the U.S. projects. PIRA said it expects at least one Gulf LNG export project to get built.
Because Asian markets have traditionally offered higher prices than Europe, Gulf Coast export developers may prioritize contracts in these markets in pursuit of better returns, PIRA said.
Asian energy players have recently taken an interest in U.S. gas shale development -- for example, the recent joint venture of China's CNOOC Ltd. and Chesapeake Energy Corp. in the Eagle Ford Shale (see Daily GPI, Oct. 12). "Linking some of these and future [U.S.] upstream assets to the LNG projects would give Asian companies a direct stake in the projects and greater incentive to import the gas," PIRA said. "Some of these companies would be logical partners in the liquefaction projects as well as it would help to minimize price risk, given that this will be the first time that LNG projects will have floating upstream gas prices."
But the Chinese and others are at work learning how to develop their own gas shales. China's shale gas reserves are estimated to be 917 Tcf by the country's Ministry of Land and Resources, according to Barclays Capital (see Shale Daily, Nov. 18).
"...China may not need as much LNG as some optimistic sellers hope because Chinese shale gas could gain market share," PIRA said. "Indian and Indonesian coalbed methane projects are also picking up steam. In addition, future Asian import requirements are already being courted by multiple LNG and pipeline export projects within Asia itself. Australia alone is promoting 12 different LNG-based projects."
Asian buyers, in particular, might be wary of depending upon the U.S. for supplies as "the U.S. has a history of using embargoes as a political weapon," PIRA noted.
And then there's the market and the relationship between Henry Hub gas prices and world LNG prices, which are linked with oil. "North American [LNG export] projects face additional risk of Henry Hub prices rising relative to Asian and European contract prices," PIRA said.
LNG export has challenges at home, too. The U.S. Department of Energy would grant the necessary export licenses and the Federal Energy Regulatory Commission would oversee facility permits. However, environmentalists might weigh in with opposition to expanded gas development at home while U.S. industrial consumers might object to the export of U.S.-based fuel and feedstock, PIRA noted.
If cries from these groups and others are loud enough -- and based on objections of its own -- Congress could move to block LNG export.
"Opposition is most likely to come from three groups of politicians," PIRA noted, "those concerned about the impact on domestic industrial and residential natural gas prices (primarily in the Midwest and Northeast), those concerned about reducing the use of fossil fuels, and those concerned about depleting domestic energy resources, particularly via sales to China."
PIRA said the White House would be likely to go along with LNG exports "absent a groundswell of popular opposition." Traditional Republicans also would be likely to support exports as they would favor domestic fossil fuel interests, the analysts said.
"However, the new class of Republicans remains a wild card," they said. "Many of the Tea Part Republicans are isolationists and protectionists and may not necessarily favor exports (particularly to China and India) at the expense of domestic industrial interests."
PIRA's forecasts assumes that at least one Gulf Cost export facility will be constructed. "In terms of Gulf Coast exports, we have exports starting in 2017, increasing to 1 Bcf/d in 2019 and 3 Bcf/d by 2025," the analysts said.
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