U.S. LNG profit seen elusive as price gap closes

Louisiana Coast

Main Pass Energy Hub LLC applied in September for authorization to export 3.22 billion cubic feet of natural gas a day, or 23.5 million tons of LNG per year, from a site 16 miles off the Louisiana coast, according to the Energy Department’s website. Gulf Coast LNG Export LLC in January 2012 requested permission to build a 2.8 billion cubic feet LNG terminal at the Port of Brownsville, Texas.

In total, 29.21 billion cubic feet a day of projects have applied for licenses to export LNG, according to the Energy Department. Assuming investment costs similar to those at Sabine Pass, they have a value of almost $60 billion.

Half of North America’s 120 million tons a year of LNG export potential will be built, Andy Brown, upstream director at Shell, the world’s largest shipping operator of the fuel, told reporters On Dec. 5. The U.S. share of the global LNG market will be “modest,” he said.

The world’s biggest LNG tankers, known as Q-Max vessels, can carry as much as 122,000 tons of the liquid fuel, or about 6.3 trillion Btu of natural gas.

NERA Report

All outstanding applications were waiting until after a Department of Energy report into the probable effect on domestic prices published on Dec. 5. Exports would have “net economic benefits” for the U.S., according to the study, written by NERA Economic Consulting.

While U.S. regulators decide how much gas they are prepared to send overseas, export projects are coming online from Australia to Angola. Some 221 billion cubic meters of annual liquefaction capacity will be added to the 413 billion currently in existence over the next four years, according to Barclays Plc. Of that, 115 billion will come from Australia.

U.S. natural gas prices will rise to $4.80 and $8.70 per million Btu by 2035 with a reference case of $6.30, according to the NERA study. The price increases by 14 percent above the base case by 2020 and 6.4 percent by 2035 assuming low expansion of LNG exports. Under a high and rapid expansion scenario, the increase will be 20 percent by 2020 and 14 percent by 2035.

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