Thanks to shale, the US is sitting on a glut of natural gas. American gas is dirt cheap, currently trading at just $3.60 per million British thermal units (mBtu), while Asian markets currently pay more than four times that amount for liquified natural gas (LNG). Even after liquifying the gas for transport—a process that adds $5-6 per mBtu—there’s a clear rationale for American LNG exports. We’ve got the supply, and Europe and Asia have the demand: Japan’s nuclear plants are now completely shut down and it’s using LNG to fill that gap, making it the world’s number one LNG importer, while Europe is eager to wean itself off of strings-attached Russian gas and its long-term “take or pay” contracts. But as the FT reports, the US isn’t the only one looking to meet LNG demand:
“One of the key tenets of LNG buyers is that you have to have a diverse portfolio. You can’t put all your eggs in one basket,” [said Wood Mackenzie analyst Frank Harris]. “I’d be very surprised if Asian buyers took more than 15 per cent of their LNG from any one source.”With a finite market, and competition from other rising gas exporting regions such as Australia and east Africa, tying up customers becomes vital.
The US is also competing with Canada in the LNG export market. British Columbia hopes to build export terminals along its Pacific coast to access Asian markets, and recently touted its cold climate to woo investors (natural gas is chilled in the liquefaction process, and BC’s deputy minister for natural gas development claimed LNG production will take 25 percent less energy thanks to his province’s cold temperatures).America is slowly getting the ball rolling on the issue: the White House approved a fourth LNG export facility late last week. Caution here is understandable, as exports are likely to drive up domestic natural gas prices and weaken a key competitive advantage American industry has been enjoying these recent years. But let’s not kid ourselves thinking that we’re the only ones itching to sell LNG to Europe and Asia.[LNG carrier image courtesy of Lightgraphs]