Will LNG Exports Rescue the Natural Gas Market
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The long term solution to the oversupply of natural gas in the United States might be through exporting natural gas via the construction of liquefied natural gas (LNG) export plants in the Gulf Coast and other areas. The industry has several of these LNG export facilities either under construction or in the planning phase across the United States.
ConocoPhillips (NYSE: COP) owns and operates the only operational LNG export facility in the United States. The Kenai LNG facility is located approximately 60 miles outside Anchorage, Alaska and started operations in 1969. The facility receives natural gas from the North Cook Inlet natural gas field and sends its output to Japan. ConocoPhillips originally planned to close the plant in 2011, but announced an extension in operations at this facility.
Cheniere Energy (NYSEMKT: LNG) and Cheniere Energy Partners, L.P. have started building a four train LNG export facility at the Sabine Pass complex in Louisiana and hope to start up initial operations here in 2015. The first phase of the project will include two trains with capacity to process 1.2 Bcf of natural gas per day. The company expects the project to cost approximately $5.6 billion.
Cheniere Energy recently filed an application with the Federal Energy Regulatory Commission and the Department of Energy to build a second LNG export facility in Corpus Christi, Texas. The facility is being designed with three trains, each with capacity of 4.5 million tons per year. The company is targeting an initial start up in 2017.
Sempra Energy (NYSE: SRE) is involved with the Cameron LNG export project in Louisiana, where the company has an existing import terminal. Sempra Energy is constructing an export facility here with capacity of 12 million tons per year or approximately 1.7 billion cubic feet per day. The company recently received approval from the U.S. Department of Energy and expects to start construction in 2013 with a projected start up in 2017.
ExxonMobil (NYSE: XOM) owns the Golden Pass LNG import terminal in Texas and has also proposed an expansion at this complex that would include an export facility. The project is part of a $10 billion investment in the Gulf Coast by ExxonMobil and Qatar Petroleum and would have export capacity of 15.6 million tons per year. The company filed for a permit to export natural gas from Golden Pass with the U.S. Department of Energy in August 2012.
Dominion Resources (NYSE: D) owns the Cove Point LNG import facility in Maryland and like ExxonMobil and Sempra Energy has proposed building an export facility here. The plant would have capacity to handle 750 million cubic feet of natural gas per day.
ExxonMobil, BP and ConocoPhillips are assessing the need for a LNG facility in Alaska, designed to export natural gas from the North Slope field to Asian markets. The companies said that the North Slope of Alaska contains 35 Tcf of discovered natural gas.
Some politicians are opposed to building LNG export plants in the United States arguing that this would lead to less supply at home and higher domestic prices for consumers. A recent report by the Baker Institute said that various studies have put the price impact of natural gas exports anywhere from $0.22 to $1.50 per mcf, assuming exports of 6 Bcf per day.
The Baker Institute argues that natural gas exports from the United States, if allowed, will never reach a high enough level to raise prices because international markets will adjust accordingly in the long term. The adjustments include developing local sources of natural gas deposits and the construction of pipelines to bring supply from central and south Asia into China.
The Baker Institute study also argues that the operators of these export facilities are taking on substantial long term commercial risk. The study cites the possibility of a drop in the price of natural gas in international markets and a rise in feedstock costs in the United States.
Many LNG export plants are under construction or in the planning stages in the United States, and these facilities may eventually reduce the domestic oversupply of natural gas. This relief is many years away and our energy policy should also be looking to increase demand for natural gas within the United States.
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