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United States continues move toward LNG increased exports

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Last fall I wrote an article regarding liquefied natural gas (LNG) and its impact on the U.S. energy picture. Although no new significant developments have transpired since the article was written, LNG continues to dominate news headlines because its potential to impact natural gas prices is profound.

Despite being the world’s largest natural gas producer, the US is not the world’s top exporter; that title belongs to Russia, who is the second largest producer. This is a result of U.S. law requiring export terminals to receive licenses to sell gas to countries that don’t currently have a signed free trade agreement (FTA) with the US, which includes all European nations, China, India, and Japan.

Since May 2011, 31 terminals have applied for permission to export, but only six have conditional approval. The majority of the approved export locations are in the Gulf of Mexico, one on the east coast, and the other in Oregon.

Russia’s invasion of Crimea has presented an opportunity to give the US leverage in the region and has put pressure on the Obama administration to accelerate approvals for export facilities. In late March, President Obama signed off on a license to export LNG to countries that don’t have an FTA with the US to Jordan Cove LNG Terminal, located in Coos Bay, Oregon. This is the sixth project to earn such a license, which is in high demand, but it would be the first terminal located on the West Coast to get a license. In addition, in May, Reuters covered a story about U.S. Senate Democrats pressing the President for speedier LNG export permits.

Because of high natural gas prices in Asia, Jordan Cove has a competitive advantage in supplying Asian countries with U.S.-produced natural gas. The price disparity between the locations is vast with prices in Asia reaching as high as $14/MMBtu.

If all six facilities start exporting natural gas, the amount of exports would total 9.3 Bcf /day – over 10% of current U.S. production. It’s unlikely that the remaining 25 sites will all receive approval, and the market is responding accordingly. The longer-dated natural gas contracts have remained relatively stable, all trading between $4 and $4.30/MMBtu this year. LNG presents a great opportunity for the US, but its impact on future prices is still uncertain.

Posted: May 14, 2014