Analysis: U.S. LNG exports a real possibility; obstacles remain

BARCELONA Fri Dec 3, 2010 12:53pm EST

BARCELONA (Reuters) - The potential for the United States to become a major exporter of liquefied natural gas is very real as domestic supply rockets, but the industry is not yet fully convinced that the economics will entice investors.

The massive increase in U.S. shale gas production and reserves in recent years has turned the U.S. gas market on its head, prompting traditional LNG importers to launch plans to export domestic gas overseas.

The LNG industry is still grappling with the idea that the United States -- once expected to be a major importer of LNG -- now has the potential to become a big exporter.

The United States could become the "next Qatar", said Betsy Spomer, a vice president at BG Group (BG.L) during the CWC LNG Summit in Barcelona this week. Qatar has become the world's biggest LNG exporter after a decade of rapid production expansion.

Spomer said that BG, itself a major LNG producer and shipper, and which currently imports LNG to U.S. terminals, is considering its options for U.S. export.

Two liquefaction plants have been proposed in the United States this year on the site of existing import terminals -- one by Cheniere Energy (CQP.A) at Sabine Pass in Louisiana, the other by Freeport and Macquarie Group (MQG.AX) in Texas -- both of which could be online by 2015. The potential is to initially export around 2 billion cubic feet per day of LNG from the United States overseas.

These would be the first export terminals built in the United States in 40 years.

The bet for export is that U.S. gas prices will stay low versus European and Asian gas prices over a 25-year period, making it profitable to produce and ship gas from the United States overseas.

U.S. gas prices have fallen about 23 percent since the beginning of the year, pressured by ample domestic supply, tepid demand and record high inventories. Conversely, oil-indexed prices in Asia and Europe have risen, widening price spreads across the world.

"Export from the United States looks doable, but requires U.S. gas prices to be lower than Europe and Asian prices over a longer period," Christopher Goncalves, vice president at consulting firm Charles River Associates, told Reuters on the sidelines of the CWC LNG Summit conference.

Top executives from the LNG world gathered together this week in Barcelona and LNG export was a major topic of discussion. Many saw U.S. gas prices rising in the coming years, some said to above $6 per million British thermal units by half way through the next decade. U.S. prices fell to near $3 this year.

Should the price spread between U.S. and European or Asian prices narrow, or if potential investors expect for them to narrow, then these new export projects may struggle to get built, some say.

"I feel that the low U.S. gas price situation is circumstantial, and it cannot be thought that this favorable price difference with other markets will last for the lifetime of a liquefaction plant," Repsol's Managing Director of LNG Benjamin Palomo said in an interview.

The political implications of sending U.S. resources abroad is another possible obstacle for these new projects. There is potential for future increased natural gas use in the United States in new sectors like transport.

The U.S. Department of Energy is currently looking at Cheniere Energy's plan and is expected to soon decide whether or not to approve exports to major import nations across the globe.

"In the end, we could use all of this gas at home (in the United States)," Goncalves said.

(Reporting by Edward McAllister; Editing by Marguerita Choy)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.