The shale boom that’s putting the U.S. on course for energy independence is providing little comfort for liquefied-natural gas consumers in Asia.
“If you want cheap gas, there is no gas,” Fereidun Fesharaki, the chairman of Facts Global Energy, an energy consultant, said at a conference in Kuala Lumpur yesterday. “You’re going to pay at least $12 to $13 per million British thermal units,” compared with about $4 in the U.S., he said.
Spot cargoes of liquefied natural gas for delivery to Northeast Asia cost $14.50 per million Btu, research company Energy Intelligence Group said June 5. With U.S. natural gas trading at about $4 per million Btu, Asian importers will pay about $10.60 per million Btu, Houston-based Cheniere Energy Inc. (LNG:US) estimated in an April presentation.
Asia is buying LNG at almost four times the price of U.S. natural gas as Japanese utilities consume record amounts to replace idled nuclear capacity and China seeks to bolster use of cleaner fuels. Importers still won’t benefit from cheaper U.S. supplies as exporters seek to safeguard investments in new projects, according to the head of Petroliam Nasional Bhd., Malaysia’s state-owned energy company known as Petronas.
“The notion of cheap LNG is a fallacy,” Shamsul Azhar Abbas, Petronas’s president and chief executive officer, said at the Asia Oil & Gas Conference in Kuala Lumpur yesterday. “Energy users need to understand that energy security requires a premium to allow re-investments.”
The U.S. is looking more likely to start exporting LNG after Freeport LNG Development LP’s terminal in Texas became the second project to be approved by the Energy Department to send gas to countries that don’t have free-trade agreements with the U.S., Goldman Sachs Group Inc. said last month. Cheniere Energy’s Sabine Pass terminal, the first to get the go-ahead, was approved two years earlier.
The Energy Department is weighing 20 applications for LNG export terminals. Hydraulic fracturing of shale rock formations from Texas to West Virginia has boosted supplies of gas in the U.S., helping the nation overtake Russia as the world’s biggest producer of the fuel in 2009.
LNG won’t be cheap in Asia because even if the U.S. starts exporting the fuel, the minimum cost to liquefy and then ship the gas will be at least $10 per unit, according to David Morrison, the chairman of energy at Wood Mackenzie Ltd., an Edinburgh-based consultant.
“There is no such thing such as cheap LNG,” Martin Houston, BG Group Plc (BG/)’s chief operating officer, said today in Kuala Lumpur. “Price levels, however they are set, have to cover the costs of new projects.”
By the time they are completed, Freeport and Sabine Pass will be able to ship 3.6 billion cubic feet of LNG a day. The U.S. may export 6.5 billion to 8.5 billion cubic feet a day of gas by 2020, Morgan Stanley analyst Adam Longson said in a report on May 20.
Gas for July delivery at the Henry Hub in Erath, Louisiana, traded at $3.851 per million Btu on the New York Mercantile Exchange yesterday. The contract to deliver gas in January 2018 was about $5 per million Btu.
Japan, the world’s largest LNG importer, is paying about $16 to $18 per million Btu for LNG, according to Ken Koyama, the chief economist and managing director of the Institute of Energy Economics Japan. Based on current prices, future U.S. exports could cost only $10 to $11 per million Btu, he said.
Japan imported a record 86.9 million metric tons of LNG in the 12 months ended March 2013 as most of the country’s nuclear reactors remained shut because of safety concerns after the March 2011 disaster at the Fukushima Dai-Ichi atomic station.
“We need to diversify supply,” Koyama said in Kuala Lumpur yesterday. “Demand for LNG will rise substantially. We have existing major players such as Australia, but we also need new suppliers.”
Transporting LNG from the U.S. to Asia still won’t benefit suppliers or importers significantly, according to Facts’ Fesharaki. U.S. LNG exporters will get “very small” margins amid “fierce” competition among suppliers, he said.
“If you want to profit from the U.S. shale gas revolution, you have to move to the U.S. because that’s where you will see the benefits,” he said.
China’s ambitions to drill for less accessible gas deposits, touted as an alternative to imports, may be delayed, according to Wood Mackenzie. While the government in Beijing predicts output of 80 billion cubic feet by 2020, or 23 percent of total expected demand, the target is likely to be met only in 2030, according to Morrison.
China currently produces no commercial quantities o shale gas. Output in 2020 will likely be 18 billion cubic meters, according to the average estimate of seven analysts surveyed by Bloomberg in February. That’s more pessimistic than a year earlier when the forecast was 23 billion cubic meters.
“China’s shale-gas reserves are probably much more than in the U.S.,” said Koyama. “These are just reserves at the moment. They face quite a lot of difficulty to get the gas out.”
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