World natural gas markets are becoming interrelated as countries rely more heavily on global, waterborne supplies as a supplement to conventional supply.
The Fukishima disaster of 2011 crippled Japan’s nuclear program and pushed imports of natural gas to record levels. A drought in Brazil caused hydroelectric output to plummet earlier this year and Brazil was forced to pay upwards of $18/mmBtu for spot cargos of LNG. North America continues to be the largest demand market for gas in the world at approximately 27% of total.
The fastest growing region is Asia, with China, Japan and South Korea experiencing near double digit growth. This rapid growth in Asian demand, coupled with the vast reserves of U.S. shale gas has resulted in a wide price arbitrage of LNG supplies (see price map below). This global arbitrage is driving the economics behind multi-billion dollar LNG export projects that are emerging around the world.
The Department of Energy has received 20 LNG export applications totaling 29 bcf/d of potential output.
Sources: AP, FERC, Reuters
The first full permit came in 2012 when Sabine Pass’s $5.6 billion liquification project was approved for up to 2.2 bcf/d of capacity. On Friday, May 17 the Freeport LNG export project in Texas received conditional approval ship up to 1.4 bcf/d. The project owners already have off take agreements with two Japanese utility companies and BP, and the first volumes are expected to begin flowing in 2017.
The DOE released a statement assuring the public that “granting the requested authorization is unlikely to affect adversely the availability of natural gas supplies to domestic consumers or result in NG price increases or volatility that would negate the net economic benefit to the U.S.”. The DOE is required by law to prove a net economic benefit to the U.S. economy from LNG exports.
Projects planned as expansions of existing import facilities may have the smoothest paths to getting the necessary permits and the market is looking for a total of 6-9 bcf/d of approved projects by the end of 2013.
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