Saturday, January 21, 2012

More Lower 48 LNG Exports

The idea of lower 48 LNG exports is becoming a reality. A few months back Cheniere start the trend. I made this prediction last November:

What's next? - I assume the Cheniere business model is a good one and similar import terminals with the right ingredients will follow suit.  See page 38 of the Cheniere presentation (LINK) for plant volumes. 
This week the Department of Energy authorized Sempra to export LNG from the Cameron Parish Site (LINK), and quote:

HOUSTON -(MarketWatch)- The U.S. Department of Energy said Friday it has authorized Cameron LNG to export liquefied natural gas, opening the door wider for U.S. natural gas companies to send their bounty overseas.
The export permit is only the third awarded in the U.S. It allows Cameron, a wholly-owned subsidiary of California-based natural gas distributor and marketer Sempra Energy, to ship up to 1.7 billion cubic feet a day of LNG from its in Cameron Parish, La., facility to countries possessing free-trade agreements with the U.S. 

Here's a list of existing North American LNG import terminals with my analysis of proximity to shale gas (including the pipeline infrastructure to move the shale gas) Note, this table does not include the 2.8 BCFD proposed Gulf Coast LNG Terminal, Brownsville Texas:

The plan to convert LNG import terminals into an export terminals make sense for terminals located near shale gas fields and adequate pipelines. By this analysis there's good potential for four more new export terminals.  Two of those potential sites are controlled in part by Alaskan North Slope producers. I say this to illustrate the business decision before the producers: Build liquefaction  units at existing lower 48 import facilities -or- build a North Slope gas treatment plant, a $20 billion pipeline to Valdez, and a liquefaction at Valdez.  Obviously the Alaska LNG option is pointless unless North Slope gas is priced at a deep discount to Henry Hub.  How deep?  To defer the cost of $20 billion gas line to Valdez North Slope gas needs to sale for $1.50/MMBTU less than Henry Hub (based on a discount cash flow over 20 years at 5%).  

Now this isn't all bad news.  In the best case scenario the four import terminal near shale gas listed above are all converted to LNG export pushing the Henry Hub price of gas up into the $5 or $6/MMBTU range.  At that point in time Alaskan gas will not need to compete with the low capital cost of import facility conversion and the deep discount will not be a factor.  In the mean time it's important to remember the North Slope producers can sell LNG from lower 48 import terminals for less cost compared to building an pipeline to Valdez. 

Prediction - expect more announcements of lower 48 LNG import facility conversion to export.

For more information on the effects of LNG export see the  EIA report (LINK), and

Brookings Institution study on exporting LNG from the United States (LINK)

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