Widening of the Panama Canal, due to be completed in 2014, will allow most LNG tankers to transit the isthmus and make natural gas from Gulf of Mexico ports “instantly economic” to transport to high-price Asian markets.
That’s key for multiple proposals to build plants to liquefy and ship surplus US natural gas, according to experts at a Brookings Institution seminar Jan. 24. Most proposals are for existing but unused LNG import terminals on the Texas and Louisiana coasts. Giant LNG tankers, like the largest modern freighters, are too big for the existing Panama locks.
The Gulf region hosts the US’s largest concentration of natural gas pipelines and storage facilities, serving conventional wells on- and off-shore plus gas shales like the Barnett in Texas and the Haynesville in Louisiana. But prices at Louisiana’s Henry Hub have recently sunk below $2.50/mmBtu as growing shale gas production throughout the country depresses prices.
Economists agree that shipping gas to European markets, where prices are running $8 to $9, and Asian markets, where prices have gone as high as $15, could be profitable for US producers.
Both LNG markets have been buoyed by nuclear shutdowns in Germany and Japan. Deutsche Bank chief energy economist Adam Sieminski said processing costs would run about $2.90/mmBtu, so profits rise or fall on shipping costs.
Watch Adam Sieminski discuss energy trading in a featured Breaking Energy video here.
But the US has no LNG terminals on the West Coast, and the profit potential narrows significantly for Gulf-origin shipments that have to travel to Asia either through the Suez Canal or around Africa or South America. The trip around Tierra del Fuego, for instance, nearly doubles the distance from New Orleans to Japan compared to a voyage via the Panama Canal.
Veteran energy consultant James Jensen told the Brookings seminar that longer trips mean both higher shipping costs and higher LNG losses to boil-off. LNG transport costs are elevated at the moment because there’s a shortage of the high-pressure super-cooled tankers, and rental rates were running $150,000 a day in December, plus fuel and operating costs.
Brookings speakers noted that potential gas producers in Alaska are also looking at LNG exports to Asia. A small gasification plant has operated there since 1969, but is currently shut and would need expansion to justify investment in an 800-mile pipeline from major gas deposits in the north to the port of Valdez in the south.
Jensen said that Alaska producers have recently shifted their focus to exports, because low US gas prices mean “they’ll never be able to justify a pipeline,” which has long been proposed to connect to the lower 48 states. The heads of BP and ConocoPhillips said in early January they would work with ExxonMobil, the third major leaseholder, on a joint plan for exports.
Charles Ebinger, head of Brookings’ Energy Security Initiative and leader of a study on LNG exports from the lower 48 states, said the study has found the shale discoveries and technology advances mean the US has sufficient natural gas supply to meet domestic demand and enter the export market, especially with only “modest” growth predicted in US consumption.
He said even as producers have responded to low prices by drilling less, production has stayed high due to advancing technology.
ConocoPhillips and Chesapeake Energy just announced plans to further reduce gas production because of the persistent low price.
The first LNG project with full export approvals from the Department of Energy is Cheniere Energy Partners’ Sabine Pass terminal, planned for four trains to liquefy up to 2.6 billion cubic feet per day. Cheniere this week announced it has contracted 70% of that capacity to three buyers: BG Group, Gas Natural Fenosa, and GAIL (India) Ltd.
Contracts are contingent on Cheniere’s receiving final federal and state environmental and other permits allowing the plant to be built. Target operational date is 2015.
Photo: The Chinese research vessel and ice-breaker Xuelong which will depart for the Arctic, arrives in Xiamen, south China’s Fujian province on June 27, 2010, as the Arctic, a region much coveted by energy-hungry Beijing for its as-yet untapped supplies of oil and natural gas.
