Shale Boom, Gas Demand to Make North America LNG Exports Reality
The increase in North American natural gas due to the shale gas boom and a projected increase in global gas demand mean that North America will become a liquefied natural gas (LNG) exporter within the next few years.
The recovery in global LNG consumption in 2010, combined with anticipated gas demand growth in emerging economies of China and India presents opportunities for LNG exports, as does growing demand in Europe, where gas production is expected to decline and demand for gas-fired power generation is expected to grow. Near-term LNG demand also will be impacted by Japan, where the earthquake and tsunami damaged nuclear power facilities, resulting in strong demand for natural gas to fire electric power plants. However, it is too early to tell how this will impact Japan's long-term plans.
North American LNG exports should be sustained as long as North American shale gas production remains at existing levels, said Zach Allen, publisher of PanEurasian Enterprises NATS report, which tracks global LNG markets. Cheniere Energy's Sabine Pass in Louisiana and Freeport LNG in Texas are two existing LNG regasification facilities that will have liquefaction capacity added to allow for LNG exports.

Sabine Pass's liquefaction facilities are scheduled to begin operations in 2015, drawing from onshore Gulf Coast conventional gas plays as well as the Barnett, Haynesville, Bossier, and Eagle Ford shale gas plays. Freeport LNG's liquefaction facility also is expected to be in service in 2015, and will draw its supply from the Eagle Ford, Barnett and Haynesville shale plays as well.
Cheniere noted that adding liquefaction infrastructure to Sabine Pass will allow the company arbitrage opportunities for Henry Hub versus oil prices. Worldwide LNG prices are predominately based on oil prices, or between $10-$25/MMBtu, while Cheniere estimates the cost of delivering gas from Sabine Pass to Europe and Asia at between $7 - $12/MMbtu. The project also has the advantage of having significant infrastructure already in place, including storage, marine and pipeline interconnection facilities, which means lower capital costs.
The Cove Point LNG regasification facility near Baltimore, Maryland could potentially serve as an export facility for Marcellus shale gas, Allen noted. He sees Marcellus gas as a stranded asset, as it's difficult to move gas south from the Marcellus region. "Through displacement, you can move a certain amount of it to the north and east, but that precipitates a price war," said Allen, who also speculates that Sempra Energy's Cameron LNG facility in Louisiana might also be another possible LNG liquefaction facility.
Allen sees Gulf Coast liquefaction facilities as primarily serving the European market, while the Kitimat LNG plant in British Columbia has a competitive advantage in serving northeast Asian markets due to its proximity to Asia. The terminal would also provide a market for Canadian gas, as incremental demand in northern Washington, Oregon and northern California does not provide enough market for gas supply in the region.
Last month, Kitimat partners Apache Canada Ltd., and EOG Resources Canada said Encana Corporation would acquire a 30 percent working interest in the planned facility. The three companies have a significant presence in the Horn River Basin in northeast British Columbia, which is one of the areas from which gas supply for Kitimat will be sourced.

One challenge facing North American LNG exporters is the lack of liquidity and transparency in the European LNG market. Since LNG traded on power exchanges in Europe can be done privately, with no price information disclosed, "we have no idea what LNG prices really are," Allen noted. The market is at best opaque, said Allen, but market forces will eventually push for more transparency.
North American exports of LNG have the potential to compete in cost terms in the global LNG market, Barclays Capital noted in an April 19 report. However, the successful development of liquefaction terminals will depend not only on economics, but ability of project sponsors to secure long term off-take agreements, access to capital and regulatory permits. The higher oil price environment anticipated by Barclays will help make North American LNG exports competitive; however, they are likely to come at the higher end of the LNG supply cost curve.
Solid credit is key for a company developing a North American liquefaction project due to the fact that U.S. and Canadian gas not stranded, as it usually is with liquefaction projects. In a traditional stranded gas project, the project developer would have to ensure that the sale price, with a known floor price, covered the breakeven cost of the integrated facility and secured a certain return on the investment.
Both the U.S. and Canada have deep and liquid domestic gas markets that offer an alternative for feed gas; these alternatives make the all-in cost of LNG production a moving target. "It would take an enormous balance sheet to shoulder the risk of buying gas at Henry Hub and selling it at oil equivalents in Europe or Asia over a 20-year timeframe," Barclays noted.

Shale gas development around the world also could dampen LNG consumption, including China. However, Barclays estimated in a March 22 report that the effect of shale gas on Chinese LNG imports would be limited to about 1 Bcf/d over the next decade, given the constraints China faces in developing its shale gas. Shale gas exploration and development in other countries is still in the early stages, but worldwide success of shale gas development "could pose a significant downside risk to LNG import needs."
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- Governor Issues Disaster Declaration for Southeast Texas
- Exxon Building Largest Renewable Diesel Plant In Canada
- EU Considers Capping Russian Fuel Prices at $100
- World Still Waiting to See What China Reopening Means
- Former Brazilian Senator Takes Over Petrobras Helm
- Gasoline Price More Expensive Than Year Ago Levels
- Oil Traders Weigh Up Market This Week
- RWE-National Grid JV Submits Bid For New York State Wind Rights
- Petrobras Completes $1.6B Sale Of Albacora Leste Field To Petro Rio
- BSEE Checks Out Coastal Virginia Offshore Wind Project Progress
- Valaris Employee Reported Missing from Rig
- Is The USA Strategic Petroleum Reserve Stock Dangerously Low?
- How Will Russia's Oil and Gas Industry Fare in 2023?
- Oil and Gas Security Trends in 2023
- Fundamentals Strong Enough for $90+ Oil Period
- Police to Board Valaris Rig After Worker Reported Missing
- Texas Oil & Gas Industry Paid Record $24.7Bn In Taxes And Royalties
- USA Drops Rigs
- Risk Premium Embedded in USA NatGas Vanishes
- Texas O&G Sector Closes 2022 With Continued Employment Growth
- Valaris Employee Reported Missing from Rig
- Louisiana, Texas To Gain Thousands of Energy Jobs At Start of 2023
- Where Will WTI Oil Price Be at End 2023?
- Is the USA Shale Boom Over?
- Talos Makes Two Commercial Discoveries In Gulf Of Mexico
- Gasoline and Diesel Prices Expected to Fall
- Iran Oil Gushes Into Global Market
- Higher Oil Prices Have Not Led to More Exploration
- Will Oil Hit $100 Per Barrel in 2023?
- Shell Finds Gas In Pensacola High-Impact Well Off UK