The shale boom has unleashed a flood of natural gas on the domestic U.S. market, and where just a decade ago plans were in place to build out terminals designed to import liquified natural gas (LNG), now there are projects underway to facilitate LNG exports. But as Bloomberg reports, the recent drop in the price of crude oil is making the prospect of American LNG exports much less attractive to potential buyers:
Brent’s 22 percent drop this year outpaced the 8.9 percent decline in natural gas at Henry Hub, the benchmark for U.S. liquefied natural gas shipments that are scheduled to begin in 2015. When the cost of processing and shipping American supplies to Asia is taken into account, the price advantage over oil-linked cargoes from producers such as Qatar has more than halved, according to data compiled by Bloomberg. […]“The U.S. will not sell cheap gas,” Umar Jehangir, the deputy secretary of development and joint ventures at Pakistan’s Petroleum and Natural Resources Ministry, said in Singapore on Oct. 29, adding that the opinion was his own. “U.S. LNG will be exactly the same price as gas coming out of Qatar to Asia.”
Asia was considered a prime target for American LNG, thanks to the sky-high prices countries in that region of the world are willing to pay for the gas (demand there has spiked in recent years, due in no small part to Japan’s decision to shutter its nuclear reactors after the 2011 Fukushima disaster). But the price of gas there is often linked to the price of oil, and the recent bear market is eroding what potential cost advantage American supplies might have had, especially when you factor in the costs of liquifying, shipping, and regassifying the shale gas glut.American LNG producers will still find buyers, and a number of export terminals already underway aren’t being built for naught. Europe, for one, certainly has an incentive to buy U.S. gas as a way to diversify away from Russian supplies.