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August 21, 2008

LNG to go into the higher priced international markets

Analysis of: Freeport LNG applies to export gas imports | www.ogj.com
This analysis is solely the work of the author. It has not been edited or endorsed by GLG.
Analysis By:
Hans Linhardt, PresidentHans Linhardt
President, LTDI, Inc.
Implications: The LNG terminal operators like Freeport LNG Development LNG have invested in their LNG import and regasification terminals to meet forecasted shortages of natural gas (NG) in the order of 10 billion cubic feet per day (bcfd) by 2010.  However, the recent significant play by shale gas and the low NG prices in the US compared with Europe and Asia leave the LNG terminal operators with very little imported LNG, and most do not have a dedicated source of LNG supply.  In order to keep the cooled down terminal operational Freeport LNG has to buy some LNG on the open market at high prices and sell as much boil-off to the US market as possible and export operational required quantities of LNG to the higher priced global market. For this purpose Freeport LNG has applied to the Department of Energy for a blanket authorization of short term LNG exports in the order of 24 billion cubic feet.  

Analysis: The significant development of shale natural gas is putting the US LNG importers and terminal operators in a corner.  We do have a shale gas surplus on the near horizon and have to act now.

•  keep the price at around $9/MMBTU to give incentives for the shale investors to continue support of NG drilling and development

•  utilize as much shale gas as possible for clean power aplications

•  consider LNG export from viable and environmentally accepted LNG terminals as long as the global LNG price is higher than the US market NG prices

•  develop infrastructure for LNG transportation

Actually the investment for adding a liquefier train at an LNG terminal could be recovered in a very short time since all the basic infrastructure exists (storage tanks, cryogenic transfer lines and ship loading facilities and structures).  Of course, one should select a proven standard design of about 500 MMSCFD of the MRC (also MCR) design with a single refrigeration compressor.  Such a plant could load one 150,000 cubic meter ship once a week.  And when the global price structure changes in favor of import, the LNG liquefaction train -to be built as a modular design - can be easily moved to an FPSO operator.  Of course, if any of the LNG terminal operators are planning a future LNG liquefaction plant at some other location, they should select several 500 MMSCFD trains and can have the advantage to move the single train from the import termial to the new plant when economical.

In view of shale gas surplus, LNG export is certainly one choice of avoiding another boom and bust cycle in the NG business. The other choice is LNG for transportation that will take some time to consume significant capacities.



Other Analyses of the Same Source Article:
U.S. LNG Export
August 27, 2008, Author: Timothy Nash, Managing Director, Dynagas

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