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Frack Baby Frack
America’s First LNG Exports Are Headed to Brazil

America’s very first shipment of liquified shale gas exports set out from Louisiana yesterday, after a departure planned for January was delayed. The LNG is headed for Brazil. Bloomberg reports:

The first U.S. export couldn’t have come at a worse time for the country’s gas suppliers. Low crude prices are weighing on the global LNG market, as contracts for the fuel are often linked to oil. A supply glut is also emerging as other countries including Australia ramp up export capacity while demand growth elsewhere slows. The worldwide surplus threatens to keep U.S. supplies swelling and domestic gas prices below $2 per million British thermal units.

Low LNG prices are a problem for U.S. producers hoping to liquify and ship their gas, because despite staggeringly low domestic natural gas spot prices (today trading well under $1.80 per mmBTU), the process of chilling that gas into liquid form and then sending it halfway around the world can add about $5 per mmBTU. In the past, foreign LNG markets were paying enough of a premium to American prices to justify the construction of these massive LNG export facilities, but that incentive has been all but erased over the past 14 months.

Still, thanks to fracking, the U.S. is sitting on a glut of natural gas, and this week it is demonstrating its ability to sell that important resource to buyers abroad. For years countries have tried to imitate the American shale revolution, but so far their efforts haven’t been rewarded. Now, thanks to LNG exports, U.S. shale gas is finally going global. According to the EIA, America should become a net natural gas exporter sometime next year. That’s the power of shale.

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  • maulerman

    The references to pricing miss the underlying contracts under which the gas is being shipped. Long term supply agreements for over 80% of the LNG output were negotiated by the LNG export facility before the facility was completed, therefore they are not subject to the pricing fluctuations as implied by this post.

  • Andrew Allison

    It should not be necessary to point out that the roughly $5 per MBTU cost to liquefy and transport NatGas applies to all sellers. In other words, the world market price for LNG includes these costs and thus the US can readily compete with other suppliers. About one-third of worldwide demand is from three countries (Korea, Japan & Taiwan) with no other source of gas. Roughly another third is from Europe, which currently gets most of its gas from Russia via pipelines and is nervous about the fact. Gazprom should be too, because LNG puts a lid on the price it can charge. It will be interesting to see what sort of price Europe is willing to pay to reduce its dependence upon Russia.

  • Kevin

    How much if that $5 is due to energy costs? Liquefying and moving LNG is energy intensive) and thus will come down (somewhat) as the price of energy itself drops.

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