Thursday, November 26, 2009

Outbound LNG

What happens when natural gas storage is full and shale gas discoveries abound? ConocoPhillips exports LNG from storage! (LINK).

In May Freeport received regulatory approval to re-export foreign-sourced LNG from its terminal. This enabled Freeport and its customers to profit from seasonal price swings by importing LNG during summer, storing it and re-exporting to higher-paying markets in winter.

The 6.4 bcf of storage capacity at Freeport is nearly full, giving customers such as Conoco the option to re-export.

Previously, analysts had not expected to see much re-exporting activity from Freeport this year because thin LNG price differentials between global markets slimmed profitability. But, as Asian LNG prices rise toward January, margins could widen.
Add international LNG margins to the domestic gas equation - one more way to soak up high inventories. As inventories drop, domestic prices will find support above the $4.50/MMBTU level. For pipeline economics calculations this price level forms a lower boundary.

As a business model summer buying and winter exporting may prove profitable and add some small measure of price stability throughout the calendar year. Ultimately liquification capacity may be built to find foreign outlets for excess Gulf Coast gas.

Bottom line - all these factors are good development of the Alaska Gas Pipeline.

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