Shifting LNG Economics | Russell T. Rudy Energy LLC
The shale revolution flooded the domestic natural gas market with large volumes which in turn led to stagnant prices. Consequently, U. S. gas producers have long seen Asian LNG markets as a highly lucrative alternative. Predictably, a number of LNG projects were approved and are under construction. “World Oil” reports that the Chenerie Energy Inc. LNG facility at Sabine Pass, Louisiana will begin production in December.
However, Zin Smati, CEO of Engie’s GDF Suez Energy North America, maintains that nobody is making money on LNG exports anymore. Engie, the world’s largest independent power generator, is a partner in the Cameron LNG export terminal being built in Louisiana. Smati indicated that the Cameron facility is no exception.
Previously, when the spread between Asian LNG and U. S. natural gas prices was $14 per million British Thermal Units, LNG projects made a lot of since. However, LNG prices are tied to those of crude oil, and as the latter has collapsed, spreads have thinned. Liquefaction and transportation costs for LNG remain relatively static while prices have fallen dramatically.
The U. S. Department of Energy had originally predicted that we would be a net exporter of gas by 2017, and some industry observers still see the future for LNG as positive. This is largely due to “take or pay” clauses in LNG contracts which require buyers to pay for product whether it is shipped or not. In the short term, potential buyers might be reluctant to sign “take or pay” contracts, but in the long term the lure of a reliable energy source from a stable country might prove irresistible.
To read the article in its entirety, please go to http://www.worldoil.com/news/2015/9/25/nobody-is-making-money-off-us-natural-gas-exports-engie-says .
