While the excitement mounts regarding the fate of a number of proposed U.S. liquefied natural gas (LNG) export projects, the CFOs of three companies with projects on the line said Wednesday that a good market exists among free trade agreement (FTA) nations, some right in North America's backyard.
That is somewhat counter to the current industry focus on getting federal approvals for exports to non-FTA nations, which comprise a larger, albeit more distant, market.
The trio from Cheniere Energy Inc., Dominion Resources and Sempra Energy made their comments as part of a panel discussion of LNG exports at the Bank of America Merrill Lynch 2012 Power and Gas Leaders Conference.
In response to a question of whether FTA countries represent enough demand to fill the gap if the federal government fails to authorize more exports to the non-FTA nations, Sempra Energy CFO Joe Householder said he is fully expecting to get U.S. Department of Energy (DOE) approval for exports to non-FTA countries, but if that does not happen Sempra could still build "one or two liquefaction trains" to export to South Korea, an FTA country.
"There are roughly 16 of the FTA nations, and the most interesting part of it is that some are right in our backyard," said Meg Gentle, CFO of Cheniere, which already has DOE authorization for both FTA and non-FTA exports from its Sabine Pass LNG export project in Louisiana.
"In the Caribbean nations that are FTA, they import a lot of oil to produce electricity so there is a tremendous incentive to switch off oil at current high prices," Gentle said, citing Puerto Rico as an example of a current LNG importer that could take a lot more gas. "The Puerto Ricans could save more than a $1 billion a year just by importing more natural gas and expanding their existing facilities.
"We have a transportation advantage into those markets over other LNG producers around the globe. Exporting to Asia is a long, long voyage, so exporting into the Caribbean countries is closer and improves our political ties. FTA gas demand is obviously very interesting and seems to be an easier process with the DOE."
FTA nations are covered in the existing federal Natural Gas Act, so exporting to those nations receives an automatic approval, said Gentle, noting that she agreed with Householder that DOE eventually will approve exports to non-FTA nations.
Dominion CFO Mark McGettrick said the global market is "very excited" about U.S. LNG prospects and his firm is in contact with two serious counterparties that are interested in obtaining and marketing gas through Dominion's Cove Point, MD, site, which he thinks will be the only East Coast export facility. Dominion plans to make a $2.5-3.5 billion investment in Cove Point's export facilities once it recieves final DOE approval.
McGettrick said he does not think all of the export projects will get built, but he feels Cove Point, along with the Cheniere and Sempra facilities, will be approved and built.
Cheniere has all that it needs for the Sabine Pass brownfield project, but it also is very hopeful of developing a greenfield LNG export facility at Corpus Christi, TX, said Gentle, outlining plans for a three-train facility at the same location that was previously proposed for an LNG import terminal (see Daily GPI, Sept. 4).
Other questions answered by the three CFOs related to the international market, pricing and what impact, if any, U.S. gas exports might have on the global behavior of LNG buyers and sellers. While initial U.S. exports might not change much, Householder said Japanese buyers have indicated that they would like to see some global supplies tied to Henry Hub prices rather than the exclusive tie of LNG to oil prices everywhere but North America.
"We haven't seen any change in behavior in LNG global market participants necessarily, but when I have been in Japan, certainly they have indicated that they would like to see more diversity of supply and pricing policies," Householder said. "Whether or not some of those contracts get rewritten we don't know; they may stay on an oil-indexed basis, but I think Japan and other buyers would like to see some Henry Hub-based pricing as well."
McGettrick said Dominion has always received a lot of interest in Cove Point, but what he has seen change more recently is the intense level of interest in the possibility of U.S. exports.
"A lot of the folks who need supply are getting worried about who are going to be the winners here [in the United States] on LNG and who is going to be shut out," he said. "We've seen a huge influx of interest from folks who want to get a piece of some of the early projects much more so now than six or eight months ago. They are trying to gauge who are going to be the winners in this first round, and they don't want to be left out, so they are very aggressive in terms of wanting to get a piece of the pie."
Gentle said the U.S. projects "will inject some additional supply into the global market, but as we've seen in the past (2007-2009) when there was about 10 Bcf coming on the market, the international market was able to absorb all of that gas in a short [three-year] period of time." She doesn't think the U.S. entrance in the market will necessarily force any changes in the operations of other producers around the world.
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