U.S. LNG Projects Eye Asian and European Customers Post-2016

By Ben Priddy, May 14, 2013

WEB EXCLUSIVE, Moscow. In a new report, the U.S. Energy Information Agency (EIA) predicts that the United States will become a net LNG exporter as early as 2016. Growing domestic gas supply and low natural gas prices will drive American LNG export expansion, with half of exports originating in the lower 48 states thanks to higher volumes of shale gas production, the EIA Annual Energy Outlook 2013 states. The other half will come from Alaska. While many new U.S. projects initially target growing energy markets in Asia-Pacific, ExxonMobil and Qatar announced last week plans to move forward with a joint LNG export facility in Texas that could send new gas supplies to the UK starting in 2018.

Expansion of the ExxonMobil-Qatar Petroleum International Golden Pass LNG receiving terminal will take five years to complete and add up to 15.6 million tons of export capacity, according to Bloomberg. The project is only the latest in a series of proposals to expand American gas exports from the Gulf Coast region, with Cheniere Energy's Sabine Pass terminal in Louisiana and the joint Conoco-Phillips-Michael Smith LNG terminal in Freeport, Texas having already signed gas supply agreements with customers in Japan and South Korea.

Russia's Ministry of Economic Development predicts that new gas supplies coming from the United States will force Gazprom to lower it's export prices by 2016 to remain globally competitive, according to a recent ministry report. Golden Pass could be the first U.S. project initially aimed at supplying European customers, which could compete with Russian plans to expand the Nord Stream gas pipeline to Northern Europe and the UK. Platts reports that gas supplies from Golden Pass could be directed to Qatar's underutilized re-gasification capacity in the UK, contingent upon receiving U.S. government permission to export LNG.

Currently, Cheniere Energy's Sabine Pass is the only facility with government approval to export LNG to non-trade agreement countries, including Japan, South Korea, and countries of the European Union. After winning export permission in 2011, Cheniere is now adding liquefaction capacity at it's Sabine Pass terminal to make it the world's first bi-directional LNG facility with a nominal capacity of 18 million tons per year. South Korea's KOGAS already signed a supply contract with Cheniere Energy last year. Japan's Osaka Gas Co. and Chubu Electric Power Co. have also signed agreements for use of the 13.2 million metric ton capacity Freeport LNG facility, which is expected to be granted an export license over the next several months to start operations in 2017.

In addition to the Sabine Pass LNG terminal, Cheniere Energy also owns and operates the Creole Trail Pipeline that connects the terminal to downstream markets in the United States. "The Sabine Pass site is strategically located to provide export services given its large acreage position, proximity to unconventional gas plays in Louisiana and Texas and its interconnections with multiple interstate and intrastate pipeline systems," according to Stephan Dube, a contributor to the online equity research platform Seeking Alpha. Five out of the six