Peak Oil is You

Donate Bitcoins ;-) or Paypal :-)

Page added on January 24, 2014

Bookmark and Share

World buyers line up to buy US natural gas

World buyers line up to buy US natural gas thumbnail

Countries across the world have been quietly signing deals in recent months to import natural gas from the US, revealing a growing appetite for the fuel overseas as domestic output soars.
Up to a dozen long-term deals, each worth billions of dollars, have been penned behind closed doors with companies in China, Japan, Taiwan, Spain, France and Chile as global demand spikes, according to company, industry and trade sources.
Through the agreements, China in particular has emerged as one of the biggest beneficiaries of cheap American natural gas that in the coming years will be piped to Gulf Coast plants and liquefied for shipment abroad in tankers.
The unannounced deals, which amount to about 2 percent of daily US supply, are not the first of their kind, and they depend on US government approval to construct two new liquefied natural gas (LNG) plants.
But the number of new buyers, and their global scope, show how the US is taking steps to becoming a major export hub by stealing ahead of rivals in Australia and East Africa, successfully wooing needy Asian buyers even before projects begin construction. Global competition may squeeze profit margins on some exports of US gas.
Companies like Britain’s BP and France’s GDF Suez, already committed to taking LNG from the US, are now finding multiple buyers willing to take tranches of supply.
“As we see more contracts getting signed, it’s an indication that the US has really cheap natural gas that will help supply the global market,” said Jason Bordoff, director at the Center on Global Energy Policy at Columbia University.
The US is producing record amounts of natural gas thanks to a drilling boom, and more than a dozen export projects have been proposed. But large domestic users of natural gas such as the petrochemical industry are worried that unfettered exports could push prices higher at home. The Obama administration has been approving exports on a case-by-case basis.
So far, only four projects are allowed to export across the globe and only one is under construction.
Cheniere Energy’s Sabine Pass project in Louisiana, expected to begin shipments late in 2015, has sealed deals with importers in Europe and Asia over the past two years.
This latest batch of gas sales will be exported from Sempra Energy’s Cameron LNG plant in Louisiana and the Freeport LNG plant in Texas, sources said. Both plants are expected to begin operations by the end of the decade, pending approvals.
Sempra is still waiting on permits to construct the Cameron plant, and to export the gas to countries with which the US does not have a free trade agreement. Freeport has full export approval, but is yet to begin construction.
Securing buyers early can make or break an LNG project. Without buyers, a project will not receive financial backing or be built.
GDF Suez, which acquired export rights at Cameron last year, has agreed to sell all of its 4 million tons per year of capacity to buyers in Japan, Taiwan, China and Chile, according to a review of deals confirmed by industry sources.
Japan’s Mitsubishi 8058.T and Mitsui, also with export rights at Cameron, have separately targeted major buyers such as Spain’s Repsol, France’s Total and Japanese utilities.
Mitsubishi is to sell a significant chunk of LNG to its own trading arm in Singapore.
Sources said Japanese buyers were reluctant to commit to large deals while the fate of its nuclear fleet remained uncertain after the 2011 Fukushima disaster.
Mitsubishi is also in talks with Indian Oil Corp. to sell 1 mtpa of LNG for its planned terminal at Ennore in southern India, a company executive said. Exact volumes may be adjusted.
Sempra hopes to make a final investment decision to build the Cameron plant later this year. Once that decision is made, the deals agreed by GDF Suez, Mitsui and Mitsubishi automatically become formal sales agreements, industry sources said. The San Diego-based company expects to win export approval from the US Department of Energy before April.
Meanwhile, BP is in talks to export LNG from the Freeport plant to China National Offshore Oil Corporation (CNOOC), giving the British company a foothold in the world’s largest energy consumer. This and older deals with other exporters will soon make China one of the largest importers of US gas.
BP has a further deal to supply Japanese utility Tepco with 0.5 mtpa, sources said.
BP declined to comment. Mitsui and its prospective Japanese utility customers Kansai Electric and Tohoku Electric also declined comment.
For a full list of deals, see table.
More than 12 million tons per year (mtpa) of LNG would be exported from the United States under the deals, or around 1.5 billion cubic feet per day of gas, though some volumes may alter in final negotiations, sources said. US daily production is about 70 billion cubic feet.
“These deals will send a signal that there is still strong demand for US LNG volumes,” said Andres Rojas, analyst at Waterborne Energy in Houston.
GDF was also in talks with Thailand’s PTT but these were abandoned after a failure to agree terms last year, a senior PTT source said. Mitsui also broke off talks with South Korean importer GS Caltex, a source at the company said.
Despite these recent deals, sellers have found it harder than expected to find new buyers, and have had to offer favorable terms when they do.
A projected LNG supply spike between 2016-2020 from North America, Australia, east Africa, Russia and Asia has empowered buyers to push down the price of long-term deals being negotiated now.
This is partly reflected in the low profit margins US exporters stand to make from many of the recently concluded agreements.
“The US is not the only gas producer, so we are competing in a market with countries like Qatar, Malaysia, Australia and potentially East Africa,” Bordoff said.
“There is not infinite demand. There is only so much supply that the global market can take.”
In its first long-term LNG deal into Asia, GDF Suez is selling 0.8 mtpa to Taiwan’s CPC from 2018 at barely breakeven levels.
According to the price formula reviewed by sources, CPC will pay around $12 per million British thermal units for the gas in the first year of the contract, a steep discount to the $16 its pays for LNG prices in Asia linked to oil.
Moreover, America’s edge over rivals could easily dim should domestic gas prices rise nearer to pre-shale boom levels and crude oil prices simultaneously drop to around $80 a barrel.
At those levels, LNG deals linked to oil begin to look globally competitive, handicapping buyers of American gas.
Bearing these risks in mind, buyers nevertheless want limited exposure to US LNG primarily as a way of negotiating down prices in oil-indexed, long-term contracts with Qatar and Australia.


4 Comments on "World buyers line up to buy US natural gas"

  1. Davy, Hermann, MO on Fri, 24th Jan 2014 11:25 pm 

    These people need to ask Shell why they got cold feet on the US gas bonanza. This is from the WSJ recently:

    Royal Dutch Shell RDSB.LN -0.83% PLC abandoned plans to build a multibillion-dollar plant in Louisiana that would convert natural gas into diesel and other fuels, amid skyrocketing costs for the project and doubts about where U.S. oil and gas prices are headed.
    The latest cost estimate to build the Louisiana plant topped $20 billion, a huge jump from the $12.5 billion figure Shell released in September when it selected a site for the project south of Baton Rouge.

  2. DC on Sat, 25th Jan 2014 12:34 am 

    I would like to know why a nation that still imports ~ 1/6th of its NG, feels this crushing need to export as much of it as they can. Sure, the permanent recession in the Us has indeed resulted in *temporary* market gluts. That fact says little about the wisdom of exporting. Now if the US of war and coal produced, or even could produce, say, 110% or more of demand and keep that up for hundreds of years, then a case could indeed be made for exporting. Since the Us is a net-importer AND has nothing like 100 years of anything left, much less NG, the idea of exporting NG basically turns into a for-profit joke.

    And export to who? LNG tankers and ports and capital investments that would never recover their costs.

  3. rockman on Sat, 25th Jan 2014 4:52 pm 

    “America’s edge over rivals could easily dim”. What??? There are 17 countries that export LNG. The US exports less than any of them. In 2012 the largest exporter, Qatar, shipped 77 million tons while the US exported 0.2 million tons. Currently US NG is selling for a little over $4/mcf. NG is Qatar sells for exactly $ZERO/mcf. They sell no NG…they sell LNG. A US LNG exporter has to buy their NG at the current market price. The Qatar gov’t doesn’t have to pay anything for the NG that goes into their compression trains…they already own it. They also own many $billions of existing compression trains that deliver 3X as much LNG as the #2 exporter. Future US LNG exporters will have to spend many tens of $billions to even export 10% of what Qatar is doing today.

    The US “edge”? Oh yeah…I’m sure Qatar is shaking in its boots. LOLLLLLLLLLLLL

  4. robertinget on Sat, 25th Jan 2014 5:21 pm 

    Chevron is building a GTL plant in Nigeria where environmental restrictions, if any, are less onerous than the US.
    Most gas In Nigeria is still being flared
    lowing fuel costs there next to nothing.

    We can’t be sure if Shell cancelled because of anticipated cost overruns or concerns about gas supplies down the road. Maybe both. A third reason could be vehicle conversion to CNG is obviously coming. KISS, or Occam’s Razor
    principal applies.

    I’m so opposed to exporting gas on a grand scale other than by CNG pipeline,
    it makes me shudder.

Leave a Reply

Your email address will not be published. Required fields are marked *