Wednesday, January 26, 2011

The LNG Debate

There was an interesting piece in yesterday's Wall Street Journal talking about the pros and cons of exporting liquefied natural gas (LNG) from the U.S.  To me it seems like a win-win, but for those industries that have come to love cheap natural gas, the prospect of rebalancing the equation to achieve a natural gas price sustainable for producers is a less palatable idea.  The piece gives a good background on the subject and an update on the current projects, mostly at the Louisiana/Texas border.

The point that jumped out to me was the notion that the export of gas fits squarely in President Obama's strategy to double U.S. exports over the next five years.  The president already is moving towards natural gas for a number of reasons, and this should make lots of sense to him.

A little irony:  Mideast countries Bahrain, Dubai, Kuwait and possibly Saudi Arabia might become natural gas importers it the future.  Qatar might be a better source than the U.S. to serve the region, but it shows what an interesting market gas export is.

Exporting LNG is not without risk.  It costs billions of dollars to built new export facilities or retrofit the existing import facilities.  Also, China's growth has become the driver for most LNG projects, but if the country experiences a hiccup, we will face another supply disruption like we currently see with the worldwide recession and the shale boom:  lots of gas with nowhere to go.  Exxon is on record saying that the company doesn't think it makes sense to make the investment.  Outside of its glossy commercials about algae as a fuel, Exxon is not known as a bleeding edge.  Evidence its entry into shale by buying XTO rather than being there early.

Ultimately, I think the argument that exports will deeply upset the price mechanism in the U.S. is weak.  If the Freeport and Cheniere terminals in Texas and Louisiana, respectively, are turned to export, we're talking about 3.4 Bcf/day, or around 5% of U.S. consumption at current levels (and that assumes full utilization).  Assuming prices rise to make gas production economical, producers can easily make up that difference.

1 comment:

Anonymous said...

Finally a reality

http://finance.yahoo.com/news/Cheniere-Receives-Additional-prnews-998040349.html?x=0&.v=1