[ROCKMAN]

k “...that for it to remain profitable those differences have to remain in place for 20 years”. That’s the point I’m having trouble communicating. The profit for Chenier is locked in regardless of what the future price of NG might be. I went in detail explaining that the Brit will pay whatever the market price for Ng in the future plus Chenier’s costs and profit margin. It’s essential a “cost+ deal”: whether Chenier buys the NG for $4/mcf or $14/mcf they sell the same amount of LNG and still make their profit margin. And when if they buy their NG from producers on the same cost+ basis those producers reap the rewards of higher prices. And if Chenier covered their exposure with NG futures contracts they’ve covered their exposures. Now someone who selling those futures to Chenier may lose money but some always does in the may lose on futures contracts: it’s a bet and for one person to make money someone has to lose money. But that has nothing to do with Chenier’s LNG deal.

Now what happens if US NG goes to $14/mcf and the Brit utility has to pay $14+Chenier’s profit per mcf? Easy answer: they pay. I’ll assume UK utilities work on the same basis US utilities do: pass thru costs. When I get my electric bill there is a fuel charge. If my utility pays more for the NG it uses my bill goes up.

If you want to count that as “losing money” that’s fine by me. But if the Brit NG consumers don’t want to buy the imported NG then they can shut their heaters off. But given how close they’ve come before to being forced to do so I doubt they will. Again, if you want to count those consumers as having lost money if they have to by NG at a very high price that’s OK but it has nothing to do with Chenier or it’s NG supplier losing or making money. And I believe that’s what we’re talking about. But if US NG prices get that high it probably means any NG source the Brits have available will be that much if not higher.

For background there’s a very good reason for these players to make sure they’ve got their positions covered. I once worked for a very large national NG pipeline company. They had signed very large supply contracts with northern utilities and didn’t make sure they had those volumes covered. When it became obvious they weren’t going to be able to deliver the entire requirement they knew they faced huge lawsuits they knew they were going to lose. So they started investing in NG drilling projects. In fact, formed an entire exploration company chasing reserves both onshore and offshore. And lost their ass big time. In the end they had to sell themselves to another NG pipeline company to be able to cover their supply contracts.

They didn’t just lose money…they lost the entire company. And there were other but smaller sad tales from the 70’s and 80’s. Which is why you don’t see many companies putting themselves in such liability today. Everyone on the commodity end of the biz knows all these stories. You also need to realize that most of these big projects will require outside financing. And the bankers that will make these loans also know those stories and understand the risks very well. They won’t loan a penny unless the risk is mitigated.

[kuidaskassikaeb]

Dear Rockman:

you wrote alot, and I guess I get your point. One minor snarky quibble.
You said

Easy answer: they pay. I’ll assume UK utilities work on the same basis US utilities do: pass thru costs. When I get my electric bill there is a fuel charge. If my utility pays more for the NG it uses my bill goes up.

If you were in New York this wouldn't be true. They separated the pipes from the gas and electricity a long time ago. I would guess to please Enron, but I don't know.

I think where we really differ is that I think, that given $14 MPF gas they would find a way to break the contract, if there was $5MPF gas for sale. Probably this just means your are more honest than I am.

[misterno]

When all these 20 applications are approved by doe for LNG export then prices will rise. The higher prices will justify higher ng production costs hence the rise in ng production. At some point price of ng and production will stabilize somewhere but the only thing I am sure is there willbe a jobs boom in houston

[ROCKMAN]

k - And since we don't know all the details the Brits may have some out clauses we don't know about so they might not have to fully default. Did you catch my tale about Devon paying $40 million to cancel rig contracts when the shale gas play busted? Those drillers have seen busts before and knew how to protect themselves...especially when they borrowed money to build rigs to meet the demand. As I think I mentioned the details can be very complex including sovereign guarentees we'll never hear about. And there could be some default insurance coverage on the trade. Again, I just know enough to be dangerous. But what I do know for sure is that all the players today know very well the stories of companies that took big unprotected risks and paid a heavy price. As some say: "We're going to cover our ass every way from here to Sunday". Never fully understood that phrase but it was popular for a while. LOL

[kuidaskassikaeb]

R:

I don't know, we think differently. You say these guys have been burned and seen people burned in the past so they won't do it again. I see a pattern.

This isn't my money, and well sometimes you take a risk.

Anyway here are some things that would make me feel better about it.

We're pretty sure we can export at or below the world price for 20 years.
The twenty year pay back is a lie. It's more like 5 years.
These same guys have lots of stranded gas in Alaska, which they could sell.
Hey, take out the compressors, and behold, it's an import terminal.

[misterno]

not trying to change the subject but

can you imagine ng prices hover around 8-9-10 dollars for a long time

I say long time because that will give the confidence level to ng production companies to drill which otherwise they would not

Demand is supported big time by Mexican exports via pipeline and lng exports. I mean can you imagine all those 20 LNG liquefaction plants operating and Mexican imports are increasing like planned?

There will be a boom in Texas and anything related to energy in the US. Woow, I can't wait to see...

Call it wishful thinking but it will happen. KSA will never let oil prices going south of 100 because they have budget needs growing everyday like crazy. This will hold up LNG prices all over the world high enough for us to have a boom in TX.

Just my 2 MMBTU

[ROCKMAN]

Sierra Club Scrambles to Contain LNG Export Proposals. From: http://www.downstreamtoday.com/news/art ... a_id=39609

“The environmental organization tried to block authorization for U.S. LNG exports to Europe. The Sierra Club warned against export of LNG to the European Union. "Automatic exports of U.S. LNG to the European Union, a significant importer of natural gas, would likely expand hydraulic fracturing, or fracking, across the United States and lead to higher domestic electricity prices, impacting consumers, U.S. manufacturing, and U.S. jobs."

And at the same time they oppose frac’ng despite not doing so could “…lead to higher domestic electricity prices, impacting consumers, U.S. manufacturing, and U.S. jobs.". And then there’s also the decrease in US coal burning as utilities are using more NG since it has gotten cheaper due to frac’ng the shales. And by not exporting LNG, which is a least a little cleaner, it may push the EU to burn more oil and eventually even dirtier coal.

They are truly between the rock and hard place IMHO. Granted they wouldn’t want any of this hydrocarbon consumption but that’s obviously a realistic goal. So what’s the goal: export LNG...no LNG export…frac…don’t frac…increase US NG consumption or burn more coal…let the EU have more LNG or let them burn oil/coal? Pretty sure there’s no answer they’ll like but there has to be some plan.

[ROCKMAN]

Not from the US this time but from Canada

First that stinking Bank of China will finance the BC refinery that will take some of OUR Canadian oil sands production away from the US. Now some more Asians along with some native Canadians want to steal some of the US NG we have in Canada. From:

http://www.downstreamtoday.com/news/art ... a_id=39681

B.C. First Nation Finds Partners in Bid to Sell LNG to Asia

A small B.C. natural gas export project has moved closer to selling Canadian energy to Asia after a pair of international investors agreed to help backstop the C$500 million project. Golar LNG Ltd. had already committed some of its liquefied natural gas vessels to the export facility backed in part by the Haisla First Nation. Golar, alongside an unnamed Asian firm, has taken a 25% ownership stake in a facility that stands to be the first in Canada to send natural gas across the Pacific.

The partners have also agreed to assist with financing for the Haisla, who hold a 27.5% stake in the bid to export 600,000 to 700,000 metric tons a year of LNG. The Haisla are confident enough in the project, however, that they anticipate committing to pipeline space by the end of July, with an expected 20-year agreement worth some C$2 billion.

The BCLNG project is small relative to the giant projects envisioned by companies such as Royal Dutch Shell PLC, which is planning to move 12 million tons a year.

[Keith_McClary]

tanada - For the last 20 years US NG production has been between 18,000 bcf and 27,000 bcf per year with the highest rate in history just recorded. An LNG plant knocking out 1 bcf/day is a big operation. So for the 74 bcf/d we’re currently producing that plant would remove 1.4% from the domestic market. So even 3 or 4 such plants wouldn’t reduce domestic supplies greatly.

Petronas Plans to Invest $20 Billion in Canada Gas Project

Malaysia's state oil and gas company Petroliam Nasional Bhd plans to invest $20 billion in its liquefied natural gas project in West Canada, one of the biggest investments aimed at capitalizing on cheap North American gas, a senior company official said Tuesday.

The company, known as Petronas, is planning two LNG trains of 6 million tons per year each under the Pacific NorthWest LNG project by the end of 2019, Anuar Ahmad, head of Petronas' gas and power business, said in an email to Dow Jones Newswires.

The export terminal project in British Columbia was acquired by Petronas last year as part of its $5.2 billion purchase of Canada's Progress Energy Resources Corp. It is just one of several energy companies building LNG export terminals in Canada and the U.S. to create outlets for surplus gas that has resulted from shale-drilling technology unlocking massive new reserves.

two x 6 million tons per year = 600 bcf/yr ?

The project is crucial for Petronas as well as Malaysia, which has the third-largest oil-and-gas reserves in the Asia-Pacific region, but is struggling to maintain its status as a net exporter of fossil fuels.

Recent new discoveries help to keep reserves up, but maturing oil fields and the interruption of Petronas' oil shipments from South Sudan--due to a dispute between newly independent South Sudan and its northern neighbour, Sudan--have intensified Malaysia's search for overseas energy sources.

[ROCKMAN]

Not about US LNG exports but a broader picture. I think this story says much to folks who still anticipate Brazil eventually becoming a major oil exporter…especially to the US. With so much focus on increased consumption by China and India there weren't many folks were paying attention to the 6th largest economy on the planet. Not quit an “Hispanic Spring” but recent reports show a population with a growing impatience for a better life.


“On 16 June, Angola sent its first liquefied natural gas shipment not to lucrative East Asian markets, but to – Brazil. What unites the two former colonies is that they are both rising petro-states. Brazil is the ninth largest energy consumer in the world and the third largest in the Western Hemisphere, behind the United States and Canada. Total primary energy consumption in Brazil has increased by close to a third in the last decade, due to sustained economic growth. In addition, Brazil has made great strides in increasing its total energy production, particularly oil and ethanol. Increasing domestic oil production has been a long-term goal of the Brazilian government, and recent discoveries of large offshore, pre-salt oil deposits could transform Brazil into one of the largest oil producers in the world.

Angola LNG Ltd chairman of marketing, Artur Pereira said, "The Angola LNG seeks to be a trustworthy and competitive supplier, a strong partner in the sector for the economic development of Angola. The project is a solution adopted to reduce the burning of gas and environmental pollution, through the development of the gas associated with the Angolan offshore oil fields, with the purpose of supplying clean and reliable energy to our clients and make the investments of our stakeholders profitable. This event marks the start of a new production unit, which had not happened since 2010, and is a new source to meet the growing global demand for LNG.”

Angola LNG intends to process and deliver 5.2 million tons of LNG annually, in addition to propane, butane and condensed gases, straight from its Soyo plant, in northern Zaire province. Apparently the sky’s the limit, as EIA notes, “Angola has proved reserves of natural gas of 10.95 trillion cubic feet. That is the fifth-largest endowment in Africa, and ranks second in Sub-Saharan Africa behind only Nigeria.”

Despite linguistic and cultural connections, Brazil is not the only Latin American petro-state interested in its Southern Atlantic African neighbor. Last week the Venezuelan ambassador to Angola reminded the press that Angola and Venezuela signed a deal on energy in 2006 during the visit of the late president Hugo Chavez to Angola.

Despite African fears of U.S. imperialism and Chinese expansion, Latin America is poised to capture some elements of rising West African production, a scenario that no doubt unsettles Washington as much as it undoubtedly discomfits Beijing.”