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West Coast LNG Project Undeterred by Asian Price Drop Prediction

A London-based oil/gas analyst on Thursday predicted a longer-term price drop for Asian-Pacific liquefied natural gas (LNG) prices, resulting from a combination of factors including anticipated U.S. LNG exports. For proposed West Coast export projects in the United States and Canada this could be problematic.

However, backers of the Jordan Cove project along the south-central Oregon coast told NGI on Thursday they are not worried, even though large price advantages over other sources of global LNG are part of what makes U.S. West Coast projects economically viable.

UK-based James Hand, GlobalData's oil/gas analyst, said that despite the longer-term likeliness of what he called an "LNG price crash," the $19 billion Papua New Guinea (PNG) LNG project led by ExxonMobil is "very well placed in such an event in the region." It has cost advantages and proximity to major markets in East Asia, Hand said.

"I don't see this as a big threat to our project," said Jordan Cove Project Manager Bob Braddock, listing three aspects of the Asian thirst for LNG that favor his project:

  • The Oregon coast project's prospective customers are seeking to buy gas indexed to the U.S. Henry Hub and not to oil (as ExxonMobil's PNG project gas price would be);
  • Asian-Pacific customers for the most part are seeking supply diversity to avoid political vulnerability; and
  • Those customers need North American supplies as a "geopolitical hedge" against Russian hegemony in the global gas business.

Having made these points, Braddock said that as Hand suggests, PNG could "undercut the entire LNG market," but he finds that "quite doubtful."

Hand said that in the next four to five years, the LNG supply going into Asia is expected to surge, coming from Australia, PNG, the Middle East, Africa and North America. "In fact, Australia is looking to become the world's primary LNG exporter by the end of this decade, overtaking Qatar," he said.

Japan has been dependent upon LNG imports for years, but that need became even greater after the Fukushima Daiichi nuclear power plant disaster in March 2011. The percentage of Japan's electricity produced from natural gas shot up from 27% in 2010 to 36% in 2011, and 42% in 2012. Along with that increase, Japan's natural gas imports increased from 3.5 Tcf in 2010 to 4.1-4.3 Tcf in both 2011 and 2012.

PNG LNG is particularly well situated to take advantage of the Asian market, with 9 Tcf and two large-scale liquefaction projects that will begin production in the Asia-Pacific region this year, along with the Queensland Curtis LNG Project in Australia. The breakeven gas price for PNG is about $6.6/MMBtu, "offering substantial cushioning from potential LNG price shocks" once the facility comes online the middle of this year, Hand said.

Braddock said his project's prospective customers are all seeking diversity in their supply sources. "North America will be one of them as at present no LNG consumer has any North American LNG in their portfolios, and they will want to have at least a small amount in the mix," Braddock said.

He thinks this leaves "plenty of room" for a "handful" of North American projects to get built.

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