U.S. LNG importers turn to export markets for help

By Joe Silha - Analysis

NEW YORK (Reuters) - The U.S. liquefied gas market, traditionally an import-only business, may be poised for some big changes that would allow under-utilized regasification terminals to export the super-cooled gas to more profitable overseas destinations, industry experts said.

Freeport LNG recently requested permission from the U.S. Department of Energy's Office of Fossil Energy to export LNG from its terminal located near Houston.

"They're trying to get this done as quickly as they can to take advantage of the (higher-priced) Asian market," said Steve Johnson of Waterborne Energy in Houston, noting storing LNG at underused facilities will also help keep equipment cooled.

While the nation's only liquefaction plant in Alaska has been exporting LNG for 40 years, and some natural gas is exported by pipeline to Mexico, LNG has not yet been shipped overseas from the continental United States and may heighten concerns about having enough supply to meet future demand.

So far this year, LNG shipments to the United States have dropped to about 1 billion cubic feet per day, less than half last year's record rate of 2.1 bcf daily, and most experts don't expect the pace to pick up any time soon, with U.S. gas prices pegged well below some European and Far East markets.

Johnson, noting some Asian countries like Japan and South Korea were already paying more than $20 per mmBtu for late summer deliveries of LNG, said he expects Far East prices to top $30 this winter, an all-time high.

By contrast, U.S. East Coast gas prices this winter, typically the highest in the nation, are currently stalled between $12 and $15, far below other global destinations.

With LNG in Trinidad, a major spot supplier, currently costing about $18 and expected to move up from there as winter stock building in Europe and Asia gets underway in the fall, the pace of LNG shipped to the U.S. should stay sluggish, at least for the next six months or so.

OTHERS LOOKING TO EXPORT

Diane Haggard, communications manager at Cheniere Energy, said Cheniere had also applied for a similar export license for its Sabine Pass terminal in Louisiana.

"LNG storage capacity in the U.S is under-utilized. This would allow our terminal the flexibility to respond to market conditions," Haggard said.

Industry experts said a simple retrofit that costs about $10,000 would give most current regasification terminals export capabilities in a few weeks, but getting approval takes longer.

There are eight LNG regas terminals currently operating in the United States, but not all have the storage capacity to load the typical LNG cargo of about 3 billion cubic feet.

REEXPORT VERSUS FLOATING STORAGE PLAYS

While no one is looking to export domestically-produced gas yet, authorization to export LNG received from foreign sources would allow terminals to offer prices that are competitive with current floating storage plays, where shippers charter a tanker, load it with LNG and slow steam for a couple of months towards a higher-priced market.