Gas Glut?
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.
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.
Views: 35
Replies to This Discussion
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Permalink Reply by Les Bamburg on -
SS, sorry but it is not the BP's and ExxonMobil's making the decision to import and sell into the US market. But rather the Gazprom's, QPC's and Statoil's of the world that are calling the shots.
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Permalink Reply by Snake Stewart on
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I agree to a point Les, about them not pulling the trigger, but it has been the ExxonMobil's that have been elsewhere developing everybody else. Benefiting while our economy suffers. Actually adding to our tough times by their "Global" actions.
While they have been off trying to be "Worlds Biggest" only to end up somewhere outside of the Top 10, we sit in a situation where we could have been a leader instead of an also ran in regards to N/G & LNG production world wide. We now, because of a lack of those ExxonMobil type projects & the funds assossiated with them along with a lack of the vision to see in advance, will sit & watch as we are beat to the gun yet again in regards to alternative energy choices outside of the sandy shores of elsewhere.
We will now be bombarded with cheaper fuel sources long enough for us to continue to be dependant and squander our chances to actually use our would be glut of N/G to feed the world with an alternative to Shieks demands.
As our economy slips even farther, those willing to drill here will be picked off by people with enough money to not really need to drill us for now. Thus continueing to hold us hostage while we keep borrowing from China until Chinese is our primary language. Followed by Spanish.
Nothing against those two groups or languages, I just prefer English and a version of America that still means something.Where someone can live and decide whats best for him or herself. Not living in a place where some cat three continents over decides for you. This Government Bailout may send us down the creek faster then we could borrow our way out of, in no time flat. I hope not. Sure would be a shame to squander this too.
Thanks Les. I always enjoy reading your posts.
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Permalink Reply by Les Bamburg on
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SS, the only thing I will say is the American public is in control over the fuel it chooses. When consumers demand alternative fuel vehicles (natural gas & electricity) someone will supply the vehicles and fuel. That is the quickest way to lessen our dependence on crude imports and insure the growth in demand for natural gas. We just need the government to pave the way for installation of additional infrastructure so all those new vehicles can be fuelled.
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Its way too easy for us to forget about our problems when gas dropped to $1.50 a gallon. We are too fickle to make the needed changes until they are thrust upon us.We are our own worst enemy at times, no doubt.
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Permalink Reply by sesport on
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However, Mr. Stewart, that language you prefer isn't pure-bred 100% English. We have the Greek & Latin suffixes and prefixes. We have words that come to us from the French, Spanish, even the Carribean. Language is not stagnant, it is ever evolving. As the world becomes more global, the languages travel with the travelers.
And we've always had import/export trade as long as man has decided that what someone else has is valuable to us.
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Permalink Reply by sesport on
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Oh, I almost forgot ... re. the language ... case in point .. Gosh Darn's favorite word ... "cher." :0)
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Permalink Reply by Two Dogs, Pirate on
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It ain't the US, it will be the big boys driving the stock price of the little boys down to a price that the big boys feel is a swallowing price. The little boys that are lean may survive but the little boys that are bloated will fall by the wayside. Reminds me of a deal that happened back in the 60's when two ice companies were fighting for the lions share of the market in Alexandria. The larger was bloated the smaller was debt free. The larger said we can do better and will take you over, the smaller said how long can you afford to give ice away for free.
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Permalink Reply by Les Bamburg on
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KB, these decisions are driven by the global market. The large consumers (local distribution companies, power generators, industrials) buy the cheapest supply available on the interstate gas pipeline. That supply can be North Louisiana, Gulf of Mexico or imported LNG. Competition between the various sellers and buyers drives the price. Oversupply creates buyer's market and lower prices.
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Permalink Reply by Les Bamburg on
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Graysands, generally Williams, El Paso, TransCanada & Boardwalk control some of the largest interstate gas pipeline networks in the US. Underground gas storage is owned by many different types of companies (local distribution companies, pipeline companies, storage only companies) with no one company controlling a large share of the capacity.
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Permalink Reply by sesport on
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And, as we have discussed before Les, there's the cost to consider in building liquification plants. I don't recall offhand, but would you say our country has enough of these plants right now?
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Permalink Reply by Les Bamburg on
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Sesport, currently there are no gas liquefaction plants in the Lower 48 with the purpose of exporting LNG. The only plant of that type in the US is located in Kenai, Alaska and only has maybe five years of gas supply remaining.
Building a new LNG export plant in US would cost ~ $15-20 billion for a capacity of 2 Bcfd. The US currently imports about 9 Bcfd so production would need to increase by over 11 Bcfd and be sustainable at that rate or higher for over 20 years.
On the other hand, the US currently has six LNG import terminals with three others under construction.
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Permalink Reply by Bobi Carr ("parker") on
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Les,
I'm always looking for the silver lining. If the "glut" happens, shouldn't this be one more reason for industry and government to "buy into" T. Boone Picken's plan? In the long run, couldn't this be the thing that grabs enough attention to make a difference?
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