Liquid Natural Gas: To Positively Effect Energy Industry
A couple weeks back we posted an article that stressed the importance of the U.S. exporting their excess natural gas being produced. This is a great idea. However, there would be a need for the creation of multiple natural gas liquefaction plants to make this possible. LNG could have a great impact on the American energy industry, Dan Dzombak explains why.
…So why don’t U.S. companies just sell to Europe and Asia? To ship natural gas, you need to cool it to -260 degrees Fahrenheit so it becomes a liquid (hence the name, LNG) and can be safely transported. The problem is, while the U.S. has receiving terminals, we have no liquefying terminals. At a rough cost of $5/mcf to liquefy and transport to Asia, it formerly made no sense for North American producers to ship it, as they were better off selling gas on the continent…
…LNG in the U.S.
The only exporting plant in North America is ConocoPhillips‘ (NYSE: COP ) Kenai LNG plant in Alaska. The plant is in the process of being shut down as natural gas supplies in the Cook Inlet basin area have been falling. The problem was recognized years ago, and a pipeline was considered to connect the area to the main North American pipeline network, but the investment was never made, so no out-of-area natural gas can be processed there.
In the U.S. there are two large projects in the works. Freeport LNG is owned by Michael Smith,ConocoPhillips, Dow Chemical (NYSE: DOW ) , and other partners. It is targeting a July 2015 start date and is expected to have a capacity of 1.4 Bcfd.
The project open to regular investors is Sabine Pass LNG owned by Cheniere Energy Partners (AMEX: CQP ) with the general partner being Cheniere Energy (AMEX: LNG ) . The company currently runs a 4.0 Bcfd receiving terminal with half its capacity contracted to Total and Chevron with Cheniere Energy, taking the rest for themselves. The company plans on building a 2.6 Bcfd liquefaction plant so it can both import and export LNG. Targeting a 2015 start date, Cheniere Energy’s shares got a boost in May when the Department of Energy approved its application to export LNG.
So why is this a game changer?
Assuming roughly $5 to liquefy and ship, compared to selling natural gas to consumers in the U.S., 4 Bcfd of natural gas liquefied at Sabine Pass and Freeport LNG and sold in Asia at $14/mcf will allow natural gas producers to earn an extra $20 million a day, or $7 billion a year! This would made it possible for natural gas companies to thrive, compared to now, when they are selling gas below their cost of production in many cases…
Clearly, creating LNG and exporting it could have a great impact on the energy industry as a whole. It could better utilize the increased production of natural gas that has recently occurred in the U.S. In addition, American natural gas producers could make a pretty penny. All signs point to a positive outcome.
Quotes taken from report by Dan Dzomak, Read the entire article here.
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