Window of Opportunity for U.S. LNG Exports
A recent article in “Rigzone” chronicles the proceedings of the Platt’s 13th annual Liquefied Natural Gas Conference in Houston last week. Of particular interest were the remarks of Asish Mohanty, senior analyst with Wood MacKenzie.
More than 25 LNG export projects have been proposed to date. Six have received the requisite government approvals, and a final investment decision has been made on only one of them. Approvals involve reviews by the Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC). Basically the DOE is responsible for the issue of export licenses and the FERC for construction approval.
Asian LNG demand constitutes two-thirds of the global market, and has increased significantly in the last three years. This demand is due to the Fukushima nuclear disaster in Japan. DOE export licenses are relatively quick and easy to obtain for projects exporting to countries with whom we have Free Trade Agreements. However, of the 20 countries with whom we have such treaties (please go to http://www.ustr.gov/trade-agreements/free-trade-agreements to see the entire list), only Korea represents a significant Asian market for U.S. LNG. Japan and China are not on the list.
Eighty per cent of the world’s supply of LNG comes from five areas; the U.S., Canada, East Africa, Australia and Russia. Each of these areas are characterized by their individual strengths and weaknesses. Initially Australia was seen as the emerging force with eight projects underway. However, scarce resources and logistical challenges have led to project delays and cost overruns. These in turn have led potential LNG buyers to adopt a “wait and see attitude”.
East Africa has tremendous potential but infrastructure is non-existent and institutional uncertainty high. Canada faces significant technical challenges in getting gas from its western provinces to British Columbia and project delays are giving prospective customers second thoughts. Russia’s Yamal project is facing the daunting technical and environmental challenges of construction above the Arctic Circle.
Fortunately for the U.S., most buyers want access to our LNG exports, due to lower deliverability risk, easier access to labor and other resources, an extensive pipeline network and multiple suppliers. However, Mohanty sees our advantages as temporary and feels the window of opportunity will not stay open indefinitely. In the long term, he foresees supply competition, distance to markets, and a slow permitting process working against us. He concludes that “Time is of the essence for U.S. LNG export projects.”
To read the article in its entirety, please go to http://www.rigzone.com/news/oil_gas/a/131850/Time .