By REBECCA PENTY
Dozens of multibillion-dollar natural gas shipping terminals
proposed from Canada to Mozambique risk being held up by an
industry debate over how to determine the fuels price.
Investment by companies including BG Group, Chevron and
ExxonMobil in seaside terminals to liquefy gas for global
transport depends on buyers signing long-term contracts at
prices high enough to justify project
s that can cost more than
Some Asian buyers are holding off on 20-year purchase
agreements as they assess how US exports may impact prices,
according to industry consultants ADI Analytics.
Pricing is definitely the critical issue, Uday
Turaga, chief executive officer of ADI Analytics, said in an
interview at the IHS CERAWeek conference in Houston.
There is the view among buyers that there is going to
be a significant amount of supply coming on stream and they
feel they can wait on contracting decisions.
Energy companies are vying to build coastal gas export
terminals in the US to capture prices in Asia that are now
five times higher than North Americas. Surging supplies
of the fuel from shale formations overwhelmed domestic demand
and deflated prices.
Cheniere Energy's Sabine Pass, the first US liquefied natural
gas, or LNG, export terminal under construction
, has contracts with
customers including Centrica and Total. Freeport LNG
Development, with the next US project
in line on the US Gulf
Coast, has long-term agreements with Osaka Gas, Chubu
Electric Power, BP, Toshiba and SK.
Gas supplies from US projects would cost less than Canadian
projects, between $10 and $12 per thousand cubic feet,
compared with $11 to $13, Greg Pardy, an analyst at RBC
Capital Markets in Toronto, wrote in a Feb. 25 report.
Liquefaction costs will be lower in the US, where some project
s can build on to existing
LNG import facilities
, he said.
The industry is disputing the potential for the spread
between US and Asian gas prices to narrow, which would lower
the cost for consumers of the fuel, including power utilities
in Japan, Korea and India
. A resolution may not emerge
until 2015 when the first US LNG supplies are expected to
come online, Turaga said.
Most of the global LNG market is priced through long-term
contracts linked to oil prices rather than gas. Theres
a limit to how much those contracts can change because while
buyers are seeking prices linked to US gas, they dont
want to be dependent solely on that country, BG Group CEO
Chris Finlayson said at the conference.
Looking at the global LNG trade through to 2025, we
still see supply rather than demand as the constraining
factor, Finlayson said.
As both supply and demand rise and infrastructure is
developed around import terminals in Asia, buyers will
benefit from lower prices, said Rajeev Mathur, executive
director of marketing at GAIL India
By 2025, hopefully more buyers, more sellers, more
liquidity, more infrastructure would happen and will
eventually lead to a convergence of prices, Mathur said
in an interview at the IHS CERAWeek conference.
The potential for Asian LNG prices to fall relative to the
price for US gas would require more than the
marginal 50 million tpy of US exports that are
probable in the near term, said Stephane Caudron, head of LNG
at Gunvor International in Geneva.
For price convergence to happen, it would require a
huge amount of US gas to be exported to the rest of the
world, Caudron said in an interview yesterday.
It may take until later this decade, when US exports become
significant, before buyers and sellers of LNG start to agree
on how to set the price, Turaga said.
The companies that buy large volumes of LNG are using
their heft to frame the debate, Turaga said.