Natural gas glut could hit U.S.
By TOM FOWLER Copyright 2009 Houston Chronicle
Feb. 1, 2009, 1:58PM

As many as seven massive natural gas export terminals are expected to start up overseas this year, expanding worldwide capacity by 20 percent and flooding markets with new supplies of the key power plant and heating fuel. Dozens of new tankers capable of carrying natural gas in a liquefied form are slated to hit the seas.

Just as these new supplies come on line, worldwide demand is expected to drop as the global recession deepens.

Operators of these new facilities are unlikely to cut back production, however, so shipments of liquefied natural gas will most likely head to the deepest markets with the greatest amount of natural gas storage capacity — the United States.

‘Counterintuitive’
“It’s completely counterintuitive,” said Murray Douglas, a global LNG analyst with Wood Mackenzie in Houston, who is predicting U.S. LNG imports will grow 30 percent to 456 billion cubic feet this year and to more than 1.1 trillion cubic feet by 2013.

“We don’t believe Asia and Europe will be in a position to absorb this new production, and the U.S. is the only market that can take it, that has a large amount of storage.”

The wave of imports might even be strong enough to challenge growing domestic natural gas production from various shale formations, including the Barnett Shale near Fort Worth and Fayetteville Shale in Arkansas.

“This can put pressure on U.S. gas prices and could delay the full development of some of the new shale projects,” Douglas said.

Other analysts, including Houston-based Waterborne Energy and Raleigh, N.C.-based Pan Eurasia Enterprises, agree that an American gas import surge may be coming.

Even the Department of Energy updated its LNG import predictions for 2009 recently to include the possibility of such a surge.

Big energy chunk
Natural gas accounts for 23 percent of total energy consumed in the U.S., according to the Department of Energy, much of it used to fuel power plants.

Twelve percent of the gas comes from foreign suppliers, most of it through pipelines from Canada, and about 3  percent comes from overseas aboard LNG tankers.

Changing to liquid
Natural gas turns into liquid at minus 260 degrees Fahrenheit. In that condensed form, it can be transported in specially designed oceangoing tankers. When the tankers reach a gasification terminal, the liquid is heated back into gas for transport by pipeline.

2007 was a record year for LNG imports into the U.S., with some 770 billion cubic feet arriving through five terminals.

Three terminals came on line in 2008, including Houston-based Cheniere Energy’s terminal on the Louisiana side of the Sabine Pass south of Port Arthur and Freeport LNG’s terminal on Quintana Island south of Houston. The third, owned by The Woodlands-based Excelerate Energy, is near Boston.

Timing not ideal
The timing was bad. U.S. imports slowed as tankers were drawn both to Europe — where prices spiked recently because of ongoing supply disputes with Russia — and Asia, where economic growth and the shutdown of a large nuclear power plant in Japan because of earthquake damage led to greater demand for natural gas to run other power plants.

More of the same was expected for this year. Some equity research firms even stopped tracking LNG terminal operators.

Asia-Pacific region
But the coming wave of new export terminals, where the gas is liquefied and loaded on tankers, is centered largely in the Asia-Pacific region, said Steve Johnson, president of Waterborne Energy. That means those markets will be well-served, leaving more tankers available for Atlantic markets — with the U.S. being the deepest and most liquid.

One might expect the new LNG exporters to delay opening, or at least cut back their output given the lower demand.

But the gas liquefaction projects have been planned over many years and cost their host governments many billions of dollars, Johnson said.

“Shutting it down is the last thing they will do,” Johnson said.

Competitive price
LNG can be competitive priced as low as $3 per million British thermal units, said Zach Allen, head of Pan EurAsian Enterprises, a management advisory firm that follows LNG markets. That’s a price the U.S. hasn’t seen since 2002.

While LNG generally is sold in contracts between importers and exporters, its price is influenced by the price of natural gas traded on the New York Mercantile exchange, which closed Friday at $4.42 per million Btu.

“Some cash is better than none, especially for producers who rely heavily on that cash for social and other programs that would be politically explosive to cut off or cut back,” Allen said.

Some of Qatar’s natural gas fields produce other valuable liquids that are stripped out and sold at prices that essentially cover all production costs before the gas even makes it to market, Douglas said.

“They are essentially producing the gas for free,” Douglas said.

The cost of getting the LNG from its foreign origin to other markets can be relatively low, Johnson said.

The 43-day round trip from the huge export terminal in Qatar to the Lake Charles, La., LNG terminal costs $2.09 per million British thermal units.

From Egypt to Lake Charles takes 30 days and $1.29 per million Btu.

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Anyone notice gasoline prices are up another 15 or 20 cents or so in the last couple of days?
Folks need a choice!
They are going to go much higher because of the refinery strike that is fixin to happen.
Absolutely!
Sorry. I 've been on too many threads and too many pre-Super bowl preparations! I've deleted it`
See above. My bad 'cher. Ruined a perfectly good streak too...no mistakes over the last, ohhh, 2 minutes!

Friends don't let friends drive, er post.....
Damn GD, I drink and type as soon as it gets after 5:30 PM. Hey GD it just turned 5:30.
I do believe in angels and spirits.
As a wonderful philosopher once said, "It's 5 o'clock somewhere!" or in this case, 5:30!
What's that saying? Oh yeah, a mind is a terrible thing to waste! LOL Wouldn't want to be working with you tomorrow. Night, night.
GD, vast majority of LNG is sold under long term contracts with pricing tied to crude oil (or crude product) prices. The drop in crude oil prices has lowered LNG price but not to US levels. Issue is for spot LNG cargos not sold under longer term contracts. Because of global economy it is unclear if Asia & Europe have sufficient natural gas demand to require any LNG supply in excess of their long term contracts. We will learn more in the 2nd half of 2009 as the new LNG trains come on line in Qatar, Indonesia, Russia & Yemen.
Same as always KB,
The bottom line. If they can import cheaper then they can produce thats exactly what they will do.Use up everybody elses while its cheap, then sell the stuff they are sitting on at a premium. Produce enough to get folks HBP and stay in the black. They dont want to continue to feed the glut anymore then they have to until the market is created to handle some of this excess.Well thats what I would do if I were them.It will be interesting to see if their future hedges can stay up considering the excess of N/G.
The big boys are still out of town, so thats where the action will continue to come from , as long as they have a say. Our economies strength/survival is not at the center of the decissions that are being made by the Exxons and BPs. It has more to do with the $43,000,000,000 profit they make.

It is also much better ecologically if the holes are getting punched on someone elses shores.
It's always about the size of the silver dollar.

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