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Watching the Boats Go By
LNG Exports Salvage Scuppered Tugboat Fleet

America’s very first cargo of LNG exports is being loaded onto a tanker at a Louisiana terminal today, and the tanker that will be transporting that superchilled hydrocarbon will itself be escorted by a fleet of custom tugboats that were initially commissioned to lead tankers bringing in shipments from abroad. Bloomberg reports:

Ready to steer the giant tanker [that will carry America’s first LNG export shipment] into Cheniere Energy Inc.’s $15 billion Sabine Pass terminal is a fleet of tugboats that’s spent the past seven years killing time — some days holding emergency exercises, some days racing each other. They were all set to escort shipments of natural-gas imports, but the ships never arrived: unexpectedly, the U.S. started producing enough gas of its own.

“The boats are beautiful — you could eat off the floor in the engine room,” said Richard Ennis, head of natural resources at ING Capital. With the switch to exports, the tugs will at last have a job to do — even if it’s not the one they expected. They “may actually get a scratch on them,” Ennis said.

The story of America’s about-face from seeking out LNG imports to now exporting that same commodity just a decade later is full of details like this. For example, back in 2003, a group of energy majors came together to fund a $2 billion LNG import terminal in Sabine Pass just a few miles from the Cheniere facility loading our first exports this week. These import terminals were, just like the port’s tugboat fleet, made idle by the shale boom, which slaked America’s thirst for natural gas.

But export terminal operators aren’t exactly in the clear now either, despite the fact that shipments are starting to roll out. The global LNG market has mirrored the oil market, as prices have cratered over the past year or so. At the beginning of 2015, Asian markets were paying as much as $15 per million British thermal units (mmBtu). Today, that price has dropped to under $7 per mmBtu. And when you do the math (domestic U.S. natural gas prices are trading around $2.40 per mmBtu, and it costs roughly $5 per mmBtu to liquify, transport, and then regassify natural gas), the price incentive for unloading American shale gas on the global LNG market is suddenly a lot more suspect. First, that is, we built the import terminals, and then decided we no longer needed to buy up LNG from abroad. Now we’ve constructed export terminals (which are roughly twice as expensive), and it seems that companies are going to have a hard time selling in today’s market.

U.S. LNG, then, doesn’t look like it will be flooding the global market anytime soon—but at least the trickle that’s just now starting to flow will give those Sabine Pass tugboats something to do.

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  • Kevin

    It could help break Gasprom monopoly position in Europe, even if not the lowest cost provider.

  • Andrew Allison

    A bit dismissive methinks. Doesn’t it rather seem as though, as in the case of oil, US LNG exporters are putting a cap on prices? The construction of the LNG export terminal is a sunk cost. All that’s needed to keep it afloat, as it were, is enough revenue to pay the interest and operating expenses. Meanwhile, I’d like to try and understand why it’s so difficult (costly) to convert a, now unneeded, LNG export terminal to import. An import terminal is, presumably, designed to receive and distribute LNG. All that’s needed to reverse the flow is the capability to liquefy Natgas, the cost of which seems likely to be very much less than starting from scratch. What am I missing?

  • GS

    Perhaps it would have been better to build single terminals that could do both gas liquefaction and re-gasification of the liquid.

  • Nevis07

    What does the gas pipeline network around the country look like? Does shipping LNG from Louisiana make sense to ship to the east coast import terminals? I’d much prefer to keep the natural gas to ourselves for cheap energy for lower cost manufacturing. Between robotics, shorter product lifespans and cheap energy, the US has a golden opportunity to gain back market share I feel like.

    More and more, I come to the conclusion that we should lessen our dependence on export markets (we’re already more insulated than most developed countries). But as the world economy downshifts – potentially into a dangerous phase – the rest of the world will be looking to the US consumer as a market of last resort yet again. This is both the point of and the undoing of all of these regional and global trade-deals which have facilitated a dysfunctional and lopsided global trade system over the past decade and a half.

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