At the same time, natural gas is helping the U.S. meet more than 80% of its energy needs, according to Energy Department data. Dow Chemical, the largest U.S. chemical maker by sales, warned that indiscriminately exporting the fuel may derail billions of dollars in investments. Plus political uncertainty. “The main source of uncertainty regarding the development of such projects remains political,” Samantha Dart, a London- based analyst for Goldman Sachs, said in a Feb. 19 note to clients. The bank estimates that the U.S. will build liquefaction capacity totaling 70 billion cubic meters per year between 2016 and 2020, or about 6.8 billion cubic feet a day. U.S. gas production is forecast to average about 70 billion cubic feet this year.
Growing demand for U.S. LNG may not be enough to convince investors to bet on rising prices because of the lack of liquidity in longer-dated futures, according to Anthony Yuen, a strategist at Citigroup Inc. in New York, and Brison Bickerton, the head of strategy at Freepoint Commodities LLC in Stamford, Connecticut. Open interest, or outstanding bets, on gas for December 2016 delivery, was at 227 contracts on the Nymex on Feb. 21, compared with 201,626 for April 2013. “I don’t think the market is pricing in substantial volumes of LNG being exported,” said Bickerton, who sees shipments of between 6 and 10 billion cubic feet a day by 2020. “People will be a lot more interested in investing out along the curve when the department actually authorizes terminals.” Japanese utilities and trading houses have already signed supply agreements with three U.S. projects with the capacity to export 14.7 million tons a year, according to the Institute of Energy Economics Japan. Osaka Gas Ltd. and Chubu Electric Power Co. have agreed to purchase 4.4 million tons annually from Freeport LNG in Texas starting in 2016. Gas for delivery in 2015 costs an average of $4.21 per million Btu and $4.40 for 2016, according to Bloomberg Commodity Fair Value data. That may be underestimating the potential price if more export projects are approved, according to Phil Flynn, a senior market analyst at Price Futures Group in Chicago.
Cheniere Energy Inc.’s Sabine Pass terminal in Louisiana, with a daily capacity of 2.2 billion cubic feet, is the only project approved to export to countries without a free trade agreement, according to the DOE. Japan, China, Taiwan and India, all non-FTA countries, account for about half of world LNG demand, according to the International Group of Liquefied Natural Gas Importers. Gas from Sabine Pass would reach Asia at about $11 per million Btu based on current 2016 U.S. gas prices, according to Pehlivanova at Barclays. Cheniere estimates the cost to deliver gas from its proposed terminal at about $10.60 per million Btu, based on Henry Hub prices at $4, liquefaction and shipping costs at $3 apiece and marine fuel at 60 cents, according to a Jan. 14 presentation on its website. LNG to northeast Asia rose to a record $19.40 this month, according to World Gas Intelligence. “U.S. LNG imports would be competitive even if domestic natural gas prices were to rise above $8 per million Btu,” Pehlivanova said.