Shale Gas Goes Global
Ready for American LNG Exports?

The first LNG cargoes could depart American shores in January, as Cheniere prepares to start shipping orders out of its Sabine Pass export terminal in Louisiana in just a matter of months. But as Reuters reports, burgeoning LNG supply and weak demand are weakening the profit motive for sending U.S. shale gas abroad:

[A]mple supplies, combined with slowing growth in China and falling demand in top importers Japan and South Korea, have cut prices and prompted a battle for market share…Spot LNG prices in Asia LNG-AS have tumbled by half from a year ago, narrowing the gap with U.S. benchmark prices. Tracking the plunge in energy prices, Cheniere’s shares are down by almost half from their peak in 2014. [,,,]

The current pricing structure is not a strong argument for building further LNG plants, [Cheniere CEO Charif Souki] said, with any projects needing at least $8 per million British thermal units (mmBtu) to sell to Europe and $9 per mmBtu to sell to Asia.

LNG isn’t cheap for producers. It involves chilling gas down to extremely low temperatures at expensive, purpose-built facilities, shipping that liquid product around the world, and then ultimately regassifying it. Together, those steps typically add around $5 per million BTU to the cost of the gas, so LNG prices need to be substantially greater than domestic U.S. prices to justify this form of gas exporting.

At the beginning of this year, Asian LNG was selling for $15 per million BTU, but that’s halved now down below $8 thanks to slowing demand and an increase in global supplies, especially those coming from Australia. Here in the states, natural gas is selling for less than $2.50 per million BTU, and if we do the back of the envelope math, that virtually erases the price imperative to go through the effort of selling off our gas glut in the form of LNG.

This isn’t to say that natural gas prices domestically or abroad won’t go up in the future, but it does put a damper on what was once seen as a no-brainer. America will be sending off its first shipments of LNG next year, but the way the market looks other U.S. firms won’t be tripping over themselves to follow suit.

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