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Crude Economics
Plunging Oil Prices Undermine the Case for US LNG Exports

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.

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  • johngbarker

    Which Saudi official once said, “The stone age didn’t end because they ran out of stone.” Natural gas, fusion, solar etc. may come together to end the petrol extortion game.

  • Jacksonian_Libertarian

    Here you go again betting against the US shale oil producers who face the “Feedback of Competition” and have a proven track record of reducing costs and increasing production, in favor of Government Monopoly owned Oil Monopolies which have a proven track record of increasing costs and declining production in old tired wells. My money is on the US shale oil producers to keep selling everything they can produce and the OPEC countries to go broke trying and failing to compete.

  • Brett Champion

    I think most potential buyers of LNG realize that the current drop in oil prices and, by extension, natural gas prices is a temporary situation. Brent will more likely than not be above $100 by this time next year. There’s no reason to halt what is a long-term investment in increasing the sources of supply because of a short-term drop in the price of current supply.

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