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The War Risk Premium For Oil Prices

The War Risk Premium For Oil Prices

Attacks in around the middle…

U.S. LNG Set To Hit Global Market

American liquefied natural gas is poised for a monumental breakthrough into international markets. For an economy struggling with the realities of low crude prices, U.S. LNG is a bright spot with an even brighter future.

By the end of next month, the first ever LNG tanker from the southern United States will depart for Europe. This is all made possible with the completion of Cheniere Energy’s Sabine Pass LNG terminal on the Gulf Coast.

Related: UAE Offers India Free Oil To Ease Storage Woes

Just ten years ago LNG’s future did not look so promising.

Industry analysts were predicting that the United States would be a natural gas importer; bringing in up to 25 percent of the country’s daily gas use from abroad by 2015. Now, with Sabine Pass coming online, the United States is expected to be a net gas exporter by 2017.

That’s a remarkable change in a relatively short period of time.

The shale gas boom saw the United States rapidly increasing production and domestic supply of LNG, which brought about a massive price drop. Good for consumers; not as good for producers who are working just above a razor-thin profit margin.

Related: Oil Price Volatility Off The Charts

Meanwhile, in Europe and Asia, countries are trying to reduce their dependence on Russian natural gas. For those countries looking for a new source of LNG, and American producers seeking a new market, the Sabine Pass terminal could not have come at a better time.

With increased demand for U.S. LNG, it is expected that prices will increase as well. This should come as welcome news to producers who have been scaling back existing operations and putting new projects on hold in the face of low prices.

This first shipment out of the Sabine Pass terminal is a sign of things to come. When the facility is fully complete, the company expects to be exporting 27 million mt/year to markets abroad including the UK, Brazil, Korea, France, Spain, and India.

The demand for LNG shows no sign of slowing down. Emerging economies such as China and India are bringing on new power plants every year. Coal is still king in Asia—but with air pollution worsening, LNG becomes a more attractive fossil fuel. In the developed world, air pollution standards have forced governments to look at cleaner forms of energy like LNG.

Related: Would A Chesapeake Bankruptcy Boost Natural Gas Prices

The Sabine Pass LNG terminal has turned the United States into an international natural gas super power. As exporters of LNG look to distance themselves from the usual suspects like Russia, the opportunity for American gas only grows.

Low prices and geopolitical factors have created the perfect time for Sabine Pass to start shipping LNG abroad. Importers need to find a new supply and the United States has a glut of supply to draw from. In the sometimes bleak world of energy news as of late, U.S. LNG is having a positive moment—and this moment is just a sign of things to come.

By Dex Dunford for Oilprice.com

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  • Amvet on February 17 2016 said:
    Unreal. We import NG from Canada and other countries and export it as LNG and this makes us a gas super power ???
  • James Hilden-Minton on February 17 2016 said:
    LNG cannot compete with wind and solar.

    Cost to liquify and transport is about $5/MMBtu. How much will utilities burn at $7/MMBtu to incur a fuel cost of $56/MWh (not counting capex and non-fuel opex at a CCNG plant) when wind and solar are cheaper?

    Longterm LNG is a small niche fuel.
  • Jim Decker on February 17 2016 said:
    This is kind of a low information article. It is fine for people who didn't realize that LNG existed, but most of us would like to know a lot more.

    I would really like to understand the economics. I know LNG is going for 3 times as much in other nations as NG goes for here. NG is higher in other countries, too.

    On the surface, it would appear that this should be a lucrative business, but what are the dynamics?

    What is the cost to liquefy and ship? I suspect since this is energy intensive, the cost would depend on the price of the energy used to liquefy and ship. I, also, assume the energy is natural gas.

    Can the competition cut their pricing substantially or will it remain stable?

    How about an article on these questions?

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