U.S. Liquefied Natural Gas Poised For ‘Biggest Year Ever’

Ultimately, one or more U.S. West Coast LNG export facilities would be of tremendous help. These sites would be much closer to Asia than our current mushrooming plans that sit along the Gulf Coast, thereby lowering transport costs for us. An LNG export facility on the Pacific Coast eliminates both the fees and potential constraints that come with transiting the Panama Canal. The Panama Canal has been setting records for LNG traffic, with even more coming to make tolls much higher.

In truth, however, the biggest problem for a West Coast LNG terminal is stringent environmental laws across the region and access to gas. The seven EIA-tracked U.S. shale plays sit distantly to the east, and building pipelines moving gas to the west is anything but a simple process.

Indeed, there are a variety of uncertainties for the U.S. LNG export business, including China’s domestic gas production and pipeline imports of gas, the depth of the commitment for China and India to buy foreign LNG over cheaper domestic coal to cut greenhouse gas emissions, and expanding nuclear programs such as Japan’s restart of facilities after the 2011 Fukushima accident.

Baker & O’Brien document the good news for U.S gas to Asia. Since U.S. competition is mostly linked to the price of oil, lower U.S. Henry Hub gas prices and higher Brent oil prices, the international crude benchmark, greatly bolster our cause (Figure).

The coming year, however, could offer a challenging start for U.S. LNG. A lack of tankers amid rising demand is surging freight costs for U.S. LNG exporters. And for the rapidly approaching winter, an apparent warming trend of El Nino in Asia could lower needs for U.S. LNG this coming winter. Not to mentioned that oil-linked gas from other sellers has been plummeting along with oil prices. Brent crude prices are down some 25% since recent highs - not good news for U.S. LNG.

Our prospects are obviously bright for the long-term. EIA projects that U.S. gas production will grow at nearly twice the rate of U.S. demand, leaving a huge surplus available for exportation. We could up domestic output by 60 Bcf/d over the next 20 years, a 70% gain from today. We will be looking East: Asia LNG demand is expected to rise 70% by 2030.

Our chance to gain customers will be a constant process: since 2008, the average LNG contract term globally has dropped from almost 20 years to less than five.

An LNG shortage could arise as soon as 2022.

Higher oil prices and lower domestic gas prices greatly help U.S. LNG shippers.Data source: Baker & O’Brien

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