Posts Tagged ‘LNG’

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Congressman Markey worries about U.S. natural gas exports

January 6, 2012

Michael Giberson

Congressman Ed Markey recently sent a letter to Energy Secretary Steven Chu inquiring into the possibility that natural gas exports may be harmful to the public interest (see press release, copy of letter). Markey’s concern is that exports will tend to push U.S. gas prices (currently around $3 or $4 per mmbtu) to international levels (in the $10 to $12 range), and higher prices would be harmful to industrial, commercial, and residential consumers of gas in the United States. The direction of his thinking is that, perhaps, the Department of Energy may want to deny LNG export licenses in an effort to keep natural gas resources in the U.S. economy.

Markey’s inquiry demonstrates a firm grasp on the basics of supply and demand, but is weaker on the economics of comparative advantage. In addition, his interest in potential LNG exports seems a bit selective, because the U.S. exports a lot of other things as well.

In 2010, Massachusetts exported over $26 billion worth of goods including optics, industrial machinery, electric machinery and pharmaceutical products. I wonder whether Congressman Markey is similarly concerned about how these exports are raising costs for U.S. producers and consumers? Alternatively, I’d like to hear his explanation of why these exports are okay, but other exports are not in the public interest.

Posted in Economics, Energy markets, Politics, Regulation | Tagged , | 6 Comments »

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Gas Exporting Countries Forum wants higher output and higher prices

November 16, 2011

Michael Giberson

The Gas Exporting Countries Forum is meeting in Qatar. From a few news stories I gather they want to boost output and obtain higher prices, and they don’t want to issue quotas or be a cartel. My thought is that, unless they’ve discovered an end-run around basic economic principles, they will be unsuccessful in achieving their stated goals.

From the Voice of Russia:

Russia has won the support of the world’s 12 largest natural-gas exporters over the need to cooperate in developing projects for production and sale of the fuel to raise prices and boost supply at the Gas Exporting Countries Forum (GECF) in Doha on Wednesday. Russia’s Energy Minister Sergey Shmatko has described this as an integral part of the Russian energy diplomacy.

In a declaration they issued after the one-day summit the 12-member Gas Exporting Countries Forum expressed the need to reach a fair price for natural gas based on gas to oil prices indexation.

From Bloomberg:

The world’s largest natural-gas exporters aim to cooperate in developing projects for production and sale of the fuel to raise prices and boost supply.

Officials from Qatar, Iran, Egypt and Algeria, among others, agreed today in the Qatari capital Doha that the price of the fuel used to generate electricity is too low. They disagreed on how the Gas Exporting Countries Forum, a producers’ group set up to share market information and coordinate projects, could also help maximize the income of its 11 members.

Producers need to narrow the gap between prices for gas and crude oil without trying to limit production, said Hamad Bin Khalifa Al Thani, the Emir of Qatar, the world’s largest exporter of liquefied natural gas.

From AFP:

Emir of Qatar Sheikh Hamad bin Khalifa al-Thani opened the summit by complaining about disparities between oil and gas prices despite the rise in gas consumption in recent years.

“It is illogical that discrepancies between oil prices and gas prices increase in favour of the first,” said Sheikh Hamad, who added that he does not call for controlling production to influence prices.

Egyptian Petroleum Minister Abdullah Ghorab, who represented his country, said a fair price “is the cornerstone for developing the gas industry.”

… GECF has been working for a fair gas price which its leaders say is the fastest growing energy source, but they deny it aims to control prices or become a cartel like the Organisation of Petroleum Exporting Countries (OPEC).

Gas prices are currently determined either in long-term contracts between sellers and buyers, which some exporters index to oil, or on spot markets.

Posted in Energy markets, Politics | Tagged , | 2 Comments »

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The U.S. as natural gas exporter?

January 26, 2011

Michael Giberson

Reports of the continuing change to the U.S. domestic energy resource picture. From the Wall Street Journal, “U.S Firms Plan to Export Gas“:

The emergence of the massive amount of gas in the U.S. “is a transformative development” that markets, policy makers and industry are still coming to grips with, said Daniel Yergin, chairman of IHS CERA, an industry consultant.

“Up until 2007 and 2008, the assumption was that the U.S. was going to be a major importer of LNG and we would be integrated into the global market as a buyer,” he said. “It never occurred to anyone we may be integrated into it as a seller.”

For the present the U.S. economy continues to import more natural gas than it exports.

U.S. Natural Gas Imports & Exports: 1995-2009

Posted in Energy markets | Tagged | 4 Comments »

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Polish gas choices: LNG imports, shale gas resource development, and/or trusting Gazprom

December 1, 2010

Michael Giberson

The is significant industry optimism concerning the potential for shale gas development in Poland (more here), with estimates sufficiently high to suggest that Poland  could shift its supply base away from heavy dependence on Gazprom and Russia’s good will to domestically produced gas from shale.  Granted exploration for shale gas in Poland is new and the resource may not turn out to be as good as expected.  Poland is also seeking to build an LNG import terminal on the Baltic Sea coast.  Nonetheless, and despite opposition from the European Union, Poland has recently entered into a another long term agreement that continues its dependence on Gazprom.

Craig Pirrong assesses the developments in an article at Seeking Alpha: “Poland: Marry Gazprom in haste, repent at leisure.” As Pirrong points out, the uncertainty surrounding shale gas resources in Poland is good reason to avoid making a long-term commitment now.   Real options analysis, Pirrong said, suggests that “considerable uncertainty with an appreciable upside potential means that it is wise to avoid locking into long term commitments until that uncertainty is resolved.”

That the state-owned monopoly gas production and distribution company  chose to lock into a long term commitment with Russia rather than explore its domestic resources more completely suggests to Pirrong that Polish officials have either been “suborned by Gazprom/Russia” or are just clueless.  Either way, not good news for Polish industry or consumers.

 

Posted in Energy markets, Politics | Tagged , , | 2 Comments »

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U.S. companies getting into the LNG export business

November 22, 2010

Michael Giberson

More evidence that shale gas development is changing the international (not just the United States) natural gas market:

Contrast the picture of the natural gas market presented by the above developments to the US Energy Information Administration outlook in 2004; selected quotes from EIA’s “The Global Liquefied Natural Gas Market: Status and Outlook,” (December 2003):

  • EIA’s Annual Energy Outlook 2004 (AEO2004) projects that four new LNG regasification terminals will be constructed on the Atlantic and Gulf Coasts from 2007 through 2010 to meet the 58-percent increase in LNG imports that is projected for that timeframe.
  • The first new U.S. LNG terminal in more than 20 years is projected to open on the Gulf Coast in 2007. It is projected that additional terminals will be constructed to serve markets in Florida, the south Atlantic states, and the western Gulf Coast. EIA also forecasts that a terminal targeting the Florida market will be constructed in the Bahamas with the gas piped to Florida.
  • By 2010, the new terminals are projected to be collectively importing 812 billion cubic feet annually.
  • Based on EIA long-term forecasts, U.S. natural gas consumption is projected to increase from 22.5 Tcf in 2002 to 26.2 Tcf in 2010 and 31.4 Tcf by 2025. Domestic gas production is expected to increase more slowly than consumption over the forecast period, rising from 19.0 Tcf in 2002 to 20.5 Tcf in 2010 and 24.0 Tcf by 2025. The difference between consumption and production will be made up by imports, which are projected to rise from net imports of 3.5 Tcf in 2002 to 7.2 Tcf by 2025.
  • Nearly all the increase in net U.S. natural gas imports from 2002 to 2010 is expected to come from LNG, with an almost 2.0-Tcf (42.0-million-ton) increase expected over 2002 levels. Net U.S. LNG imports are expected to rise from 5 percent of net U.S. natural gas imports in 2002 to 39 percent in 2010.

For the time being, the U.S. remains a net importer of natural gas.

Posted in Economics, Energy markets | Tagged , , | Comments Off

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Shale gas supplies and the Alaska gas pipeline question

February 2, 2010

Michael Giberson

For 30 odd years there has been talk of building a natural gas pipeline from the North Slope of Alaska into Canada and down to the lower 48 states.  For a time it seemed almost a necessity given the prospects of diminishing gas supplies in the lower 48 and the cost of competing on the world market for LNG imports.  Then, of course, the boom in shale gas production, which has upset what “everybody knew” about the future of natural gas supplies in the U.S. and moderated gas prices in the process.

Is it still a good idea to spend $20-40 billion for a pipeline? The WSJ offers: “Latest Risk to Alaska Gas Pipeline: More Gas.”

(HT to NewsWatch: Energy.)

By the way, interested in learning a bit more about the shale gas boom?  One perspective is offered by the documentary film Haynesville, which follows the effects of that shale gas play on several Louisiana landowners.  I haven’t seen it yet, but have heard good things.  (I am hoping to arrange a showing in Lubbock.  Lubbock area folks should let me know if you are interested in seeing the film.)

Posted in Energy markets | Tagged , , | 6 Comments »

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Shale gas as a game changer: A view from the UK

December 3, 2009

Michael Giberson

Production of natural gas from shale has dramatically changed the U.S. energy resource picture, and although experience elsewhere is limited* it is increasingly obvious that this not just a North American story. Nick Grealy, at No Hot Air, considers the implications for the UK:

North American shale gas already has a significant indirect effect on UK, European and World Gas Prices. Even in the unlikely event that there are no UK shale plays, the UK, due to exposure to international market forces, will be in the position of benefiting from an acquired immunity which will provide low prices for natural gas for many years to come. Some observers believe that volatility will also ebb and that prices will be both low and stable.

A pair of recent No Hot Air posts emphasize the fallout from the changing gas market: “Gas v. Coal,” and “Gas as the new UK baseload.”

HT to FT:Energy Source, which provides complementary remarks: “LNG glut driving a UK baseload power shift.”

*Experience in the United States is limited, too, as extensive shale gas development began less than a decade ago. (That brief background is one reason significant uncertainty remains about the reliability of the new conventional wisdom about gas resources, at least in the minds of a few analysts.  However, as one gas developer explained, the industry actually has years and years of experience drilling in and around shale formations.  It isn’t as if the resource is unknown; it is just that it was not previously accessible and economic to develop.)

Posted in Energy markets | Tagged , , | Comments Off

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Import? Export? Which way for LNG in North America?

August 10, 2009

Michael Giberson

Another sign of change in the North American natural gas industry, the Wall Street Journal reports Apache Corp. has agreed to supply gas to the Kitimat LNG terminal in British Columbia for export into the Asian market.  The Kitimat facility was initially conceived of as an import terminal to tap Middle Eastern and Australian LNG supplies, but with the dramatic natural gas supply shift in North America the developers reversed plans.

It seems hard to believe that Russia would sell LNG into the United States if Canadian producers could profitably export LNG to Asia, so I’m discounting that suggestion. Could it possibly be cheaper to ship gas from British Columbia into California as LNG traveling through Mexico than via overland? Perhaps if the overland pipelines become capacity constrained due to increased gas production in Wyoming and other Rocky Mountain states.

Also, a hugely expensive and risky natural gas pipeline from Alaska into central Canada or the U.S. midwest seems much less likely in a world of LNG exports from the Canada. A few years ago the project appeared essential, but now I’d say the market won’t support it for at least another 10 years.  So there is plenty of time for Alaskan state politics to work things out (and plenty of reason to think it won’t be enough time for Alaskan state politics to work things out).  The question for pipeline supporters: how long before new gas supplies, from shale and other recently developed sources, become expensive enough to justify an Alaskan gas pipeline project?

(HT to a former student, thanks David.)

ADDED, from the Financial Times Energy Source blog, a story about the natural gas industry lobby in Washington, DC:

He says senators are listening, and he has hopes they will recognise the growing role natural gas could play in the US, given how new technology has opened unconventional shale gas projects across the country, making the potential role of natural gas far larger than anyone anticipated just three years ago.

The politically useful thing that shale gas technology has done, at least from the point of view of natural gas industry lobbyists, is move several states from the “net consuming” to the “net producing” column.

Posted in Energy markets | Tagged , , | 3 Comments »

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Natural gas imports: From Russia, with love?

August 7, 2009

Michael Giberson

Well, maybe not “with love,” but as Platts reports, Russian LNG could arrive in the U.S. as early as this Winter. (HT to NewsWatch: Energy.)  Of course with the ongoing natural gas glut, that LNG may find itself “all compressed up with no place to go.”  The WSJ Environmental Capital blog notes that underground storage is being filled up, pressure is rising in long-distance gas pipelines and gathering systems, and sooner or later production will have to be cut. (See current EIA gas storage data here.)

A Bloomberg item reports that the natural gas “mid majors” that have been increasing output the fastest have tended to outperform investor expectations, perhaps offering an incentive to keep production up. The article also notes that exploration budgets have been cut, so the current oversupply should tend to come back into balance. See also here and here.

That is, of course, if the U.S. market isn’t flooded with LNG.

(RELATED: For more on Russian LNG and the Russia-ExxonMobil relationship, see the Streetwise Professor.)

Posted in Energy markets | Tagged , | 2 Comments »

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Coal in a world of cheap natural gas

June 15, 2009

Michael Giberson

Natural gas has become cheap enough relative to coal that some gas-fired electric generators are able to underbid baseload coal generators.  Market-based switching from coal power to gas has increased demand for gas by three billion cubic feet per day according to a Merrill Lynch analysis cited in the Wall Street Journal today. Bad for coal companies, but good for electric power consumers. More:

“There basically is no spot market for coal right now,” adds Jim Thompson, managing editor of the Coal and Energy Price Report in Knoxville, Tenn., a coal-industry newsletter. “Coal companies are living off their utility contracts.”

Utilities mostly obtain coal through multiyear contracts. As a result, even though spot coal prices have fallen, prices paid by utilities are expected to rise 2% this year to an average of $2.11 per million BTUs. Next year, the EIA expects coal prices to dip slightly to an average of $1.91 per million BTUs.

Those numbers suggest coal is still about half the price of natural gas. But the numbers can deceive. Gas-fired power plants convert fuel into electricity more efficiently than coal units, and it is cheaper to move natural gas than coal. As a result, gas can still have an advantage over coal even if the commodity cost is higher.

In related analysis, a paper by Maria Kozhevnikova and Ian Lange, forthcoming in the Review of Industrial Organization, explains why contract lengths for coal purchases are decreasing. Short version: “increased alternatives reduces contract duration.”

Posted in Electricity, Energy markets | Tagged , , | 1 Comment »

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