By REBECCA PENTY and BRADLEY OLSON
Energy companies rushing to ship liquefied natural gas to
Asia face a familiar pitfall in the boom-bust cycle of
commodity prices: the potential for too much supply.
With plans for dozens of the multibillion-dollar export
terminals in North America alone, the industry is headed
toward an overbuild that may depress Asian prices for a
decade, according to a Rice University analysis. Capacity
from proposed North American LNG terminals is more than
triple the forecast growth in Asian gas demand by 2020, data
from HSB Solomon Associates' Ziff Energy Group show.
Capital flows to where it sees opportunity and
everybodys trying to grab that flag first,
Kenneth B. Medlock III, senior director of the Center for
Energy Studies at Rice Universitys Baker Institute for
in Houston, said in a March
3 interview. What happens is that you see too many
people trying to grab the flag.
ExxonMobil, Chevron and China's Cnooc are among companies
that have proposed project
s to export LNG to Asia,
where gas prices are five times higher than in North America.
A boom in output from shale-gas formations drove the price of
gas to a decade low in the US in 2012.
The liquefaction buildout may start lowering Asian prices for
the fuel after 2016 as US projects come online, Australian
supplies rise and Japan boosts the amount of power it gets
from nuclear energy, Greg Pardy, an analyst at RBC Capital
Markets in Toronto, wrote in a Feb. 25 note.
Vying for Customers
Not everybody accepts the fact that time is of the
essence, but its overwhelmingly clear that it is,
Canadian Minister of Natural Resources Joe Oliver said in an
interview Tuesday at the IHS CERAWeek conference in Houston.
s face competition from the
US, Australia and other nations vying to supply Asian
has begun on the
first US Gulf of Mexico export facility, as Chevron and
others ponder final investment decisions for project
s on Canadas Pacific
Coast. Gulf Coast LNG supplies may have a
transformative impact on the global market, Pardy
The industry wont overbuild LNG export capacity because
are too expensive to do
without signed contracts from buyers in hand, John Watson,
CEO of Chevron, told reporters Tuesday after speaking at the
CERAWeek conference. Many of the proposals will fall away
without guaranteed buyers so supply wont exceed demand,
Even companies the size of Chevron dont build LNG
plants without having contracts in hand, Watson said.
Irrational exuberance in the LNG industry has occurred
before. Many of the US LNG export proposals are
reconfigurations of import facilities
that became redundant
after producers were able to extract vast supplies of the
fuel from North American shale, overwhelming domestic demand
and deflating prices.
The first wave of US LNG will amount to about 9
billion cubic feet/day, about 15% of the global LNG
marketplace by 2020, said Michael Smith, chairman and CEO of
Freeport LNG Development, which is building an export
facility in Texas.
The worlds going to need it, Smith said in
an interview at the conference. The appetite for LNG
just keeps growing and growing.