G. Allen Brooks looks at why recent events suggest that the conventional view of how the US LNG business develops may require companies to develop some alternative scenarios.
This opinion piece presents the opinions of the author.
In the last issue of the Musings, we discussed the decision by the Dutch government to cut back natural gas production from the country’s giant Groningen field due to growing concern over an increase in earthquake activity. We pointed out that this cutback decision opened the door for Russia to sell more of its natural gas into Europe, especially as more liquefied natural gas (LNG) volumes from Qatar are going to Asia rather than Europe due to better prices. As we monitor the growing global gas market, and the role LNG plays in its dynamics, there have been a series of interesting developments that may impact the market’s future dynamics.
In the United States last week, Sempra Energy (SRE-NYSE) subsidiary Cameron LNG LLC won approval from the Department of Energy to export domestic natural gas to countries that do not have free trade agreements (FTA) with the United States. Additionally, the Federal Energy Regulatory Commission okayed the firms’ environmental impact statement, which allows Sempra to move forward in selecting a contractor to build the three cooling trains needed to liquefy up to 1.7 billion cubic feet (Bcf) per day of gas for export. The Cameron terminal becomes the sixth export facility approved by the government to ship gas to countries without FTAs with the U.S. The six terminals have a combined 8.5 Bcf per day approved export capacity when fully up and running, which represents 11.2% of the current monthly gross volume of natural gas withdrawn from fields based on the latest data as of November 2013 (the latest data available) from the Energy Information Administration’s (EIA) Form 914 survey of gas producers.
If we assume that only these six terminals are built and operate at peak volumes, which would be in 2019 as cited by the press release from Sempra Energy, the 8.5 Bcf per day of LNG exports would represent a lower percentage of estimated gas output – 9.4% if gas production grows at 3% per year, which is below the 3.3% growth rate posted for the last 12 months of reported data. (We calculated the increase between the revised estimate for November 2012 from the Form 914 survey to the initial estimate for the month of November 2013.) The projected LNG export volumes would represent 9.7% of future domestic gas production volumes if production grows at 2.5% a year, an estimate below the 2.8% growth for the latest 12 months based on measuring the change from the initial monthly production estimates for the months of November 2012 and 2013, respectively.
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G. Allen Brooks works as the Managing Director at PPHB LP. Reprinted with permission of PPHB.
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