The hopes of the U.S. shale gas producers pinned on the soon-to-come-online LNG exports may be dashed by low oil prices. Unlike natural gas in its gaseous form, liquefied gas is indexed against the crude prices. Speaking at the Council of the Americas energy conference at Rice University in Houston on Thursday, Zin Smati, president and CEO of Engie’s GDF Suez Energy North America (formerly GDF Suez SA), said that given the current crude prices exporting LNG from the U.S. is no longer profitable.
“You cannot ship gas from the United States anymore,” Smati was quoted as saying by Bloomberg. “Nobody really is making money from LNG now. Certainly we are not.”
According to the U.S. Energy Information Agency, the projected Henry Hub natural gas price averages $2.84/MMBtu in 2015. As Mr Smati pointed out, it costs about $2 to liquefy the gas and another $3 to take it from the U.S. to Asia. Spot LNG cargoes for delivery to Asia fell to $6.80 last week from $19.70 per million British thermal units in February 2014, according to New York-based Energy Intelligence’s World Gas Intelligence publication.
“If oil prices don’t go up, it could be a dire situation for those building liquefaction facilities,” Smati warned.
The construction of new LNG export terminals – with Cheniere’s Sabine Pass due to be ready by the end of this year – should not be immediately affected by the low commodity prices as they are protected by the “take-or-pay” contracts, which mean that the buyer will have to pay the agreed price irrespective of whether they decide to take the shipment or not.
Having said that, many of the major LNG importers are looking to renegotiate the long-term contracts that prevent them from benefitting from the currently low crude and gas prices. The world’s fourth largest buyer of LNG, India seeks to renegotiate liquefied gas prices with its biggest supplier Qatar, while Japan – world biggest LNG importer – is also searching for wiggle room in their current contracts.
Meanwhile Brownsville, Texas, LNG Terminal – one of several proposed for the Port of Brownsville – has received free trade agreement (FTA) export authorisation from The U.S. Department of Energy – the website Natural Gas Intel reports. A separate authorization to export to non-FTA countries is pending.
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