LNG Exports: Will it make a big difference with gas prices?

I have been reading a lot of financial scenarios that speculate that once LNG exports start, we will see a slow steady rise in gas prices and IF US drilling is to stay competitive, then the US has to start oil exports.

I think Cheniere will be the first to go online, but I think there are several more operations in south LA and Texas coast that won't be far behind in converting dry to liquids for export.


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Even if we exported oil it would get the same low price, within a $1-3 range before trans ocean transport cost, that it gets in the USA, so it won't help drilling.  An argument could be made that exporting oil could make it worse for drillers, because if OPEC, think Saudi Arabian, views US export oil as a threat to their markets they could sell their oil even cheaper and drive oil prices even lower.  Most Middle East oil can be drilled for pennies on the dollar compared to US oil.  So called "experts" confuse the price of finding oil in the Middle East with the price that Middle East governments want to fiancé expensive social programs.  Saudi Arabia could go a decade selling oil at the current prices before they run into really serious issues.  US drillers don't have the trillion dollar cash reserve plus another trillion dollar borrowing power to outlast a oil price war.

The other LNG plants are years behind Cheniere's Sabine Pass LNG terminal, late 2018/19 if everything goes as plan and by that time numerous other LNG plants will be operational around the world.  As for increasing US natural gas prices, US export LNG has to compete on price with LNG from the Middle East and Australia and those countries also have an abundance of NG at low prices.

Most U.S. LNG projects won’t cross the finish line, new study says

Posted on July 14, 2015 | By Rhiannon Meyers  fuelfix.com

Most of the proposed U.S. liquefied natural gas export projects won’t get built amid stiffening competition from foreign competitors who will flood the market with the supercooled gas as demand begins to slow, a new study finds.

Five U.S. LNG projects already under construction, including Cheniere’s two terminals in Louisiana and Corpus Christi, will cross the finish line, but beyond that, construction appears “increasingly unlikely” for the remaining proposals, according to the latest study unveiled Tuesday by a task force of natural gas experts assembled by the Brookings Institution, a Washington D.C.-based think tank.

It’s the latest report to raise doubts about the flurry of multi-billion dollar proposals announced in recent years that would soak up vast supplies of cheap U.S. natural gas destined for markets in Asia.

“We believe it will be increasingly difficult to finance new LNG projects, due to high upfront costs in combination with a substantial number of uncertainties which influence supply and demand,” the report said.

Developers have been rolling out proposals on the assumptions that U.S. natural gas prices will remain at record low levels while LNG prices in Asia and Europe remain high, offering North American exporters attractive margins. Developers also placed bets that U.S. LNG, which is linked to natural gas prices, would allow them to hold a competitive edge over foreign suppliers, whose LNG is tied to crude prices, which were relatively high until they began falling late last year.

The report found that there are flaws in those assumptions that call into question whether U.S. LNG projects will be successful.

“While the projected number of North American LNG export facilities is massive, closer examination of the projects’ financial realities offer a more nuanced story,” the report stated.

U.S. natural gas prices are expected to rise slowly, which could undercut the competitive advantage of U.S. LNG exports unless developers figure out cheaper ways to liquefy, transport and re-heat the gas. Natural gas faces stiffer competition from other competing fuel sources, such as cheap coal and renewables, and that waning demand makes it increasingly difficult for North American LNG projects to turn a profit, the report found. And collapsing crude prices gave a fresh advantage to rival oil-linked LNG projects in other countries.

With international oil price hovering just under $60 per barrel, Australia is more competitive than U.S. exporters when it comes to supplying LNG to lucrative and high-demand Asian markets, the report found.

U.S. projects are “poised to compete favorably” in the global marketplace because they’re cheaper to build, particularly the so-called “brownfield” projects that call for converting import terminals into export facilities. Developers also have access to cheaper energy and “significant skilled labor at a reasonable cost” compared to other countries.

But swelling demand for materials and labor could erode the U.S. advantage at a time when falling oil prices are making foreign projects more attractive, the report found.

“Given all these uncertainties, possible constraints and the fact that a significant amount of projects are permeating the market in the coming years, it may be increasingly difficult to finance projects going forward,” the report said.

I think writers must be akin to gas wells, they have to produce in order to pay/get paid. The second paragraph of the article Skip shared is not clear. Do the thinkers at Brookings suppose all five projects under construction will one day export U.S. LNG? If so, what might the combined export capacity of those five projects come to?

On a related note, has Cheniere found a buyer for the product from the proposed sixth train at Sabine Pass? The ability to find someone willing to buy the product is an important factor to closely monitor.

The macro issues control what happens in our beloved briar patches. Surely there can be surprises and abrupt reversals, but the steering currents of today seem very strong.


Chinese investors proposing LNG ports for Brownsville, Tx

Since that March announcement much has changed regarding the economics of global LNG trade. Now the Chinese stock market is in free fall and economic growth is slowing.

I agree Skip.

What concerns me more than the immediate the outlook for the Chinese economy is the long term ability of the US Government to borrow money from the Chinese as we have in the past. I think that is over. And what if they start cashing in the bonds that they already have at maturity? Where will interest rates go at that point? Where will the cash come from? The printing presses?

The more the Chinese economy contracts, the more safe and desirable US stocks and bonds are viewed.  Money coming out of Chinese stocks and bonds will be coming to the safer harbor represented by US securities.  I don't think you have anything to worry about, Joe.

Suppose they want to cash in the bonds for physical gold. That would be the only sure bet in this economy. Could we be in the same position that Greece is in?


Then what stands behind these trillions of dollars in bonds that have been issued other than the gold in Fort Knox and the lands owned by the US Government? The income/ taxes that the Federal Government collects is currently a deficit. So we can't cover the bonds with current income. Where else other than these real assets does the US Government have to cover these issued bonds? Could the Public lands of the United States be at risk?



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