The Department of Energy gave a Texas-based energy company permission Tuesday to export liquefied natural gas (LNG) to countries with which the U.S. does not have free trade agreements.
Golden Pass Products will build an LNG export terminal capable of shipping 2.21 billion cubic feet per day (Bcf/d) of natural gas around the world. Itās the first LNG export terminal approved by the Trump administration, adding to the already 19.2 Bcf/d of exports approved by the Obama administration.
The export facility will create an estimated 45,000 direct and indirect jobs over the next five years, according to Golden Pass. The company estimates the construction operation of the facility will generate up to $3.6 billion in federal and state tax revenues.
The Trump administration said the terminalās approval would help make the U.S. a ādominantā energy force in the world.
āThis announcement is another example of President Trumpās leadership in making the United States an energy dominant force,ā Energy Secretary Rick Perry said in a press statement. āThis is not only good for our economy and American jobs but also assists other countries with their energy security.ā
U.S. energy ascendancy will have political implications in Europe where about half the continentās natural gas supply comes from state-owned Russian companies. Foreign policy experts see U.S. gas exports as a way to undermine Russiaās energy dominance in the region.
[…]
U.S. consumers would deal with minimal costs to export LNG and it would lead toĀ huge economic benefits,Ā according to a study published in December 2015Ā by the DOE. The study found exporting American LNG would provide huge environmental benefits as well. The report states exporting LNG will help āaddress a variety of environmental concerns in the powerāgeneration sector.ā
Exporting natural gasĀ is likely to be a growth industry, as global demand for natural gas is expected to be 50 percent higher by 2035 than it is now, according to the International Energy Agency. Demand for imports of LNG increased 27 percent in the United Kingdom last year alone.
mcf: 1,000 standard cubic feet of natural gas (1,020,000 Btu). Ā Roughly equivalent to 1 million Btu (1 mmBtu). Ā Mcf and mmBtu are often used interchangeably.
mmcf: 1 million standard cubic feet of natural gas. Ā Well production ratesĀ are usually expressed as mmcf.
Bcf: 1 billion standard cubic feet of natural gas. Ā Cumulative well production and reserve data are usually expressed as Bcf.
Tcf: 1 trillionĀ standard cubic feet of natural gas. Ā National level and large field reserves are usually expressed as Tcf.
The shale revolution enabled U.S. natural gas production to surge out of a 30-yr Ā doldrum:
Figure 1. Ā U.S. natural gas production (Bcf). Ā Source: EIA
The surge in production has been accompanied by a surge in exports:
Figure 2. U.S. Natural gas exports (mmcf). Ā Source: EIA
LNG exports are expected to be the driving force in the U.S. natural gas business over the next 30 years.
EIA: LNG exports expected to drive growth in U.S. natural gas trade
2/24/2017
WASHINGTON, DC — The United States is expected to become a net exporter of natural gas on an average annual basis by 2018, according to the recently released Annual Energy Outlook 2017 (AEO2017) Reference case. The transition to net exporter is driven by declining pipeline imports, growing pipeline exports, and increasing exports of liquefied natural gas (LNG). In most AEO2017 cases, the United States is also projected to become a net exporter of total energy in the 2020s in large part because of increasing natural gas exports.
[…]
The growth of natural gas exports, especially from new LNG terminals, sustains continued growth in U.S. natural gas production. In the Reference case, natural gas production is projected to grow through 2020 at about the same rate (3.6% annual average) as it has since 2005, when production of natural gas from shale formations began to grow rapidly. After 2020, natural gas production grows at a lower rate (1.0% annual average) in the Reference case as net export growth moderates, energy efficiencies increase, and natural gas prices slowly rise.
Natural gas production and trade vary with different assumptions for resources and technology, macroeconomic growth, and world oil prices. In the High Oil and Gas Resource and Technology case, larger natural gas resource estimates and improved drilling technology lead to higher domestic natural gas production, lower U.S. natural gas prices, and therefore, greater natural gas exports. Most of the increase in natural gas trade is from LNG exports, which grow to 8.4 Tcf (23 Bcfgd) in 2040.
However, LNG exports are highest in a case with high world oil prices. In the High Oil Price case, when consumers move away from petroleum products when other energy sources become economically favorable, global LNG demand increases and U.S. LNG exports reach 9.2 Tcf, or 25 Bcfgd. Compared with other LNG suppliers, U.S. LNG has the advantage of domestic spot prices that are less sensitive to global oil prices.
Conversely, in a scenario with more pessimistic assumptions for oil and gas resources and technology or a scenario with low world oil prices, LNG exports still increase, but remain below Reference case levels through 2040.
The EIA’s referenceĀ case projection would make the U.S. a dominant player in the global LNG market.
Figure 3. Ā EIA forecast of U.S. natural gas exports. Ā 7 Tcf/yr = 19.2 Bcf/d Ā Ā Ā Ā Ā Source: EIA via World Oil
19.2 Bcf/d = 3.4 mmBOE/d
CanadaĀ exported Ā 3.2 million bbl/d of crude oil in 2013.
The EIA reference case would make the U.S. the “Canada” of natural gas exports in BOE. Ā It would also make our natural gas exports comparable to Russia’s at ~7 Tcf/yr.
Figure 4. Ā EIA forecast of U.S. natural gas production and consumption. Ā Ā Ā Ā Ā Source: EIA via World OilFigure 5. Ā EIA forecast range of U.S. LNG exports. Ā Source: EIA via World Oil
26 Bcf/d = 4.6 mmBOE/d
RussiaĀ exported Ā 4.9 million bbl/d of crude oil in 2013.
The “High Oil Price” scenario would make the U.S. the “Russia” of natural gas exports in BOE.
U.S. exports of LNG are ramping up rapidly.
100th LNG Cargo Shipped from Sabine Pass Liquefaction Facility
Published: Monday, 03 April 2017 06:10
Cheniere Energy announced today the 100thĀ cargo of liquefied natural left the company’sĀ Sabine PassĀ liquefaction facility on Saturday, April 1st, 2017.Ā Including the 100thĀ cargo, Cheniere has delivered cargoes to 18 countries on five continents since the first shipment onĀ February 24, 2016. Ā “This milestone for Cheniere is a testament to the global demand for American LNG, the hard work and dedication of Cheniere’s workforce, and our unique business model that enables customers large and small to access this fuel,” saidĀ Jack Fusco, Cheniere’s President and CEO. “Our entire workforce shares in this milestone and in Cheniere’s future success.”
InĀ February 2016, Cheniere became the first company to ship LNG from the contiguousĀ United StatesĀ in over 50 years.
By the end of 2018, the U.S. will be a net exporter of natural gas:
COMMODITIES | Wed Mar 29, 2017 | 6:38am EDT
After six decades, U.S. set to turn natgas exporter amid LNG boom
By Scott DiSavino
The last time the United States was a net exporter of natural gas was in 1957, when Dwight Eisenhower was president. That should change in 2018 when the country is expected to become the world’s third-largest exporter of liquefied natural gas (LNG).
By the end of next year, U.S. LNG export capacity in the lower 48 states will top 6 billion cubic feet per day (bcfd), or 8 percent of the country’s domestic consumption, up from zero at the beginning of 2016. Six bcfd of gas can fuel about 30 million U.S. homes, or almost every house in California, Texas and Florida combined.
That growth in U.S. LNG exports is set to transform world energy markets. Just a decade ago, before the shale revolution, the United States was expected to become a growing LNG importer, not an exporter, likely dependent on Russian, Middle East and North African gas, much as it has for decades depended on foreign crude.
There are currently two LNG export terminals operating in the U.S. Ā Kenai AK, ConocoPhillips, has been in operation since 1969. Ā It has a capacity of 0.2Ā Bcf/d. Ā Sabine LA (Cheniere) has only been in operation for about 1 year. Ā It has a capacity of 1.4 Bdf/d.
Total Existing, Under Construction and Approved: 6,986
Total Existing, Under Construction, Approved and Proposed: 16,111
Figure 9. U.S. natural gas production, imports, exports and LNG export capacity, Ā Ā Ā Ā Ā Ā Ā Ā Ā Ā Source EIA and FERC
16,111 Bcf/yr = 44 Bcf/d
44 Bcf/d = 7.8 mmBOE/d
Saudi Arabia exported Ā 7.4 million bbl/d of crude oil in 2013.
If all of the approved and proposed LNG export terminals are built and operate at full capacity, the U.S. would become the “Saudi Arabia” of natural gas exports in BOE.
Can we “get there from here”? Ā Is there enough natural gas in the ground for the U.S. to becomeĀ the “Saudi Arabia” of natural gas.
Reserves and Resources
To answer that question, we have to get a handle on the size of the resource base.
Proved Reserves
Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations.
If deterministic methods are used, the term reasonable certainty is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate.
Proved reserves are often referred to as “P90” or 1P. Ā There is a 90% probability that this much gas will be produced. Ā People often make the mistake of thinking that proved reserves are a fixed number, which will go down with production. Ā In fact, proved reserves represent the minimum volume that is expected to be produced. Ā Proved reserves can move up and down simply due to changes in product prices.
Probable Reserves
Probable reserves are those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50% probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable reserves.
In general, probable reserves may include (1) reserves anticipated to be proved by normal step-out drilling where sub-surface control is inadequate to classify these reserves as proved, (2) reserves in formations that appear to be productive based on well log characteristics but lack core data or definitive tests and which are not analogous to producing or proved reservoirs in the area, (3) incremental reserves attributable to infill drilling that could have been classified as proved if closer statutory spacing had been approved at the time of the estimate, (4) reserves attributable to improved recovery methods that have been established by repeated commercially successful applications when (a) a project or pilot is planned but not in operation and (b) rock, fluid, and reservoir characteristics appear favorable for commercial application, (5) reserves in an area of the formation that appears to be separated from the proved area by faulting and the geologic interpretation indicates the subject area is structurally higher than the proved area, (6) reserves attributable to a future workover, treatment, re-treatment, change of equipment, or other mechanical procedures, where such procedure has not been proved successful in wells which exhibit similar behavior in analogous reservoirs, and (7) incremental reserves in proved reservoirs where an alternative interpretation of performance or volumetric data indicates more reserves than can be classified as proved.
Probable reservesĀ are often referred to as “P50” or “2P.” Ā There is a 90% probability that this much gas will be produced. Ā “2P” is also used as aĀ connotation for “proved plus probable.” Ā Probable reserves are one of the mechanisms by which proved reserves can grow without additional drilling. Ā 2P reflects the most likely volume that will be produced.
Possible Reserves
Possible reserves are those unproved reserves which analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves. In this context, when probabilistic methods are used, there should be at least a 10% probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable plus possible reserves.
Technically these are resources, not reserves. Ā Referred to as “P10” or “3P,” this represents the maximum volume that will be produced. Ā 3P generally refers to “proved plus probable plus possible.”
SEC regulations only require publicly traded oil & gas companies to report proved reserves. Ā Although probable reserves can also be reported for valuation purposes.
The U.S. Energy Information Administration compiles proved reserve data, which can be accessed through their website.
In order to become the “Saudi Arabia” of natural gas, the U.S. would need to produce about 70% more gas than it currently does. Ā Do we have the gas resource base to “get there from here”?
The answer is: Yes.
Figure 10. Ā U.S. natural gas proved reserves, proved reserves – production and production (Bcf). Ā Source: EIAFigure 11. Ā U.S. natural gas proved reserves in years of production. Ā Source: EIA
Proved reserves are only a fraction of the resource base.
Figure 12. U.S. natural gas resources. Ā Source: NGSA
P50 probable reserves (1P+2P) are nearly three times that of P90 proved reserves.
Figure 13. Ā U.S. natural gas proved & probable reserves and resources (Bcf). Source: EIA and NGSAFigure Ā 14. Ā U.S. natural gas proved & probable reserves and possible resources in years of production. Ā Source: EIA and NGSA
What StandsĀ in the Way of the U.S. Becoming the Saudi Arabia of Natural Gas? Ā Natural Gas Prices
Low natural gas prices in the U.S. are the primary reason that proved natural gas reserves declined in 2015.
Figure 15. Ā U.S. natural gas wellhead price ($/mcf). Ā Source: EIAFigure 16. Ā “Breakeven” prices ($/mcf) for major U.S. shale gas plays.
With U.S. natural gas prices currently around $3.30/mcf, typical shale gas wells are not breaking even, much less yielding a decent return.
To yield aĀ 10% unleveraged return, the shale plays require gas prices of $4.50 to $5.50/mcf.
For natural gas, the dry Marcellus would require a NYMEX gas price of at least $4.55 to generate a 10% unleveraged return, said KLR. The regionās low capital intensity is partly offset by a lower gas price realization.
The Fayetteville requires a NYMEX-normalized natural gas price of about $5.50 per Mcfe to generate a 10% return, making it the most expensive natural gas play among those examined by KLR. The Fayetteville was the only basin in last weekās Baker Hughes rig count to show zero activity as low prices continue to make the region uneconomical for new production.
While low U.S. natural gas prices are currently a drag on production and reserve growth, the also provide an advantage to domestic gas producers. Ā U.S. natural gas is extremely competitive in the global market.
JAN 31, 2016
The U.S. and Australian Race to Export Liquefied Natural Gas
Jude Clemente , CONTRIBUTOR
I cover oil, gas, power, LNG markets, linking to human development
Free market economies Australia and the U.S. will be in competition for the export of Liquified Natural Gas (LNG).Ā Since 2010, Australia’s gas demand has increased 10%, but its gas production has increased 35%, compared to an 8% increase for use and 38% gain in production for the U.S. Per BP data, Australia and the U.S. have nettedĀ 75% of the 260 Tcf gainĀ in proven global gas reserves since 2005.
In fact, through 2020, the two countries are expected to account for 90% or moreĀ new LNG exports. Overall,Ā the global LNG market is set to increase by 50% between 2015 and 2020, nearly 20 Bcf/day.Ā This year alone will see a 2.6 Bcf/day increase in LNG supply.Ā
Australia could add six new LNG export terminals by 2020, tripling its liquefaction capacity to over 13 Bcf/day.Ā Although Cheniere Energy’s U.S. LNG export facility at Sabine Pass, the first of its kind in the continental U.S., was delayedĀ until late-February or so,Ā the country could be exporting 10 Bcf/day by 2020, almost equaling current global leader Qatar.
[…]
This year’s expansion of the Panama CanalĀ will upĀ competition in the U.S. to ship LNG to Asia,Ā where over 70% of the worldās LNG is consumed.Ā The U.S. hasĀ lower production costs and lower capital costsĀ for new infrastructure, namely liquefaction facilities. Bolstered by the “shale revolution,” for instance,Ā the more difficult Gulf of Mexico now produces just 5% of U.S. natural gas, versus over 25% 20 years ago.Ā
Escalating labor costs have been a key factor inĀ Australia’s drastic LNG cost overruns. In Australia, oil and gas workers can make $165,000, 30-35% more than in the U.S. and double theĀ world’s average. One Harvard expert finds thatĀ “Australian LNG seems to be the worst business case globally,” with costs range being 2-3 timesĀ higher than in the U.S. (see here).
[…]
Daniel Yergin just saidĀ that the Saudi’s “will not destroy the US shale industry…It takes $10bn and five to ten years to launch a deep-water project. It takes $10m and just 20 days to drill for shale.”Ā U.S. gas production is rising by 1.5% per year, three times faster than consumption (projections here).
Thus,Ā U.S. gas prices will remain lower than in other markets, andĀ arbitrage opportunities for companies to ship LNG will remain.Ā North America’s gas prices are mostly set at liquid trading hubs, more linked toĀ supply and demand fundamentals.
The key importing nations are not expected to be producing much more gas, so the internationally traded market will increase its current share of 30% of total gas consumed,Ā closer to the 60% of oil demand that is traded internationally. Making gas more of a global commodity like oil,Ā LNG now accounts for about 33% of all traded gas and 10-12% of total gas demand. The LNG market is just another example of the obvious:Ā the world continues to become more connected, not less.
U.S. gas producers can undercut the price of the competition. Ā Outside of North America, LNG is currently trading at $5-6/mcf, 50-60% above the breakeven price of the shale plays.
Figure 17. Global LNG prices ($/mmBtu). Ā Source: FERC
Natural gas demand is rising, particularly in non-OECD nations:
Figure 18. Projected world natural gas consumption (Tcf). Source: EIA
Conclusion
With most export markets currently paying more than $5.50/mmBtu, global natural gas demand on the rise and most of the rest of the world paralyzed by an irrational fear of fracking (no arguments about the spelling, please), the U.S. could easily become the “Canada” of natural gas and clearly has the potential to become the Saudi Arabia of natural gas.
What does exporting do to the domestic price of natural gas in the US?
I have seen it argued that the former export ban with all sales having to be on the domestic market kept shale gas prices low…
There was no “export” ban for natural gas. There were no LNG export terminals in the Lower 48 before 2016. Natural gas prices peaked at $8/mcf in 2008. They are currently around $3.30/mcf.
LNG exports will push domestic natural gas prices up some; but the macroeconomic benefits are far larger. https://energy.gov/sites/prod/files/2015/12/f27/20151113_macro_impact_of_lng_exports_0.pdf
The industry would be healthier with nat gas at $4-5 than at $3. Still more economic than most coal. BE depends on coal source and transportation distance, but for the eastern US the BE on Powder River strip mined subbituminous is about $8.
Prolonged gas prices in the $2-3 range will eventually lead to a sharp reduction in shale gas production… Which will lead to higher gas prices.
Opening up access to the LNG market overseas, will lead to increased production here. So the effect on domestic prices will be muted.
David,
Yes, opening export markets will place pressure to increase production, but the supply increase will not occur immediately. There will be a lag between the supply ramp-up and demand increase. This brief disconnect will cause a spike in LNG prices. How long that spike persists depends on what impediments are placed in the path of production increases and transportation from well head to LNG processing.
While exporting LNG may be profitable short term for oil and gas companies for their bottom line, the domestic consumer winds up paying a lot more for domestic gas/use right now because of LNG exports.
I support the aborigines blockading the development of LNG export (they have different reasons) due to this lack of affordable NG for local use. Not the CO2 aspect of drilling more, but the rapid depletion of a resource that should be used for our own long term use in keeping energy affordable here at home. In 15-20 years or less, we won’t have affordable NG because it will all been sold to offshore markets for a song as LNG. Actually, Oz doesn’t have affordable access to NG right now due to LNG export, and soon the USA won’t either and energy prices will escalate causing higher inflation throughout the economy. And if Canada actually ever builds anything, then the global price of LNG will be stalled, but the domestic price will be higher than it would have been.
This is sort of like burning the furniture to keep the house warm. Short term thinking by the oil lobby to make a quick buck at the expense of local citizens who will require that energy locally for decades to come. We will all pay more for our energy forever, to give a quick buck to the oil and gas companies. It won’t last for long, and then we will all be out of affordable energy.
I got news for you. You don’t the LNG. The country doesn’t own the LNG. The oil companies that paid their own money to develop the resources own the LNG.
You have no more right to tell the oil companies that they can’t sell that LNG to whoever wants to buy it, then I do to tell you how far you are permitted to drive to work tomorrow.
Your logic is a redux of Jimmy Carter economics. Gas was banned for producing electricity for ~30 years. Ronald Reagan said you can’t find it if you don’t look for it (oil and gas). Nobody believed or supported him for 20 years, particularly big oil who stuck to the tired old conventions. But the great, small time innovators were believers, and developed horizontal drilling and fracking shaking convention to the core. US gas reserves were stuck at 20 years for decades but ballooned to 200 years overnight.
Massive energy development driven by sound energy use and conservation at home and massive exports to our allies (UK, Western Europe, Japan, Korea, and Taiwan) will retain friends and influence people. It will also break the grip of Russian dependence on energy imports. Reagan was right. No more malaise. This will contribute to MAGA.
Mark,
who owns mineral deposits varies from country to country. For example the British North Sea oil
resources were developed by individual companies, in Norway they were developed by the state.
Now Britain has nothing to show for all of the North Sea oil while Norway has a sovereign wealth
fund of almost 1 trillion dollars and which owns about 1% of all shares worldwide. Neither country is
a dictatorship and it is clear which country made the best decision about how to exploit their resources.
CB in April 2017 USGS increased just the Bossierand Hayneville shales by 200Tcf. Marcellus is currently 410Tcf, and the underlying Utica is likely larger but without a decent TRR estimate since insufficiently drilled as yet.
Things change. I remember the 1970s energy crisis. Experts tell us that things will, or will not, happen. The thing is that, in such matters, experts are no better at predicting than is a dart-throwing chimp. link
Anytime a Malthusian makes a prediction, they are wrong.
Hell_Is_Like_Newark
April 28, 2017 10:26 am
Don’t forget GTL :(gas to liquids). Two major GTL plants (Sasol and Shell) were put on hold when oil prices collapsed. Smaller GTL pilot plants are being built, in operation, or in the proposal stage. We may not only be exporting LNG, but gasoline, diesel, jet fuel, lubricants, and other refined petroleum products.
I agree on different grounds. The US has about half of the worlds known shale gas TRR (techically recoverable reserve, independent of price). This just got even bigger with the very new USGS TRR revision for the stacked Haynesville /Bossier shales along the Texas/Louisiana/Mississippi coast. Up from ~100 trillion scf to ~300 trillion scf. Marcellus is~ 410Tcf. Utica is probably bigger still, but insufficiently drilled tp now (because so deep) to make a TRR estimate. So with enough LNG export capacity, this will come about some day. Big win for CCGT electricity generation in resource poor places like Japan and Europe.
Japan and Europe should be installing nuclear for electricity. Wasting natural gas on electricity production is close to criminally shortsighted. Natural gas can be used in the transportation sector to cap the price of oil. The only beneficiaries of substituting natural gas for coal rather than substituting NG for oil is the oil and gas companies and OPEC.
Alternative #1 targets oil and gas at the transportation sector and results in low prices for both oil and gas. Nuclear and coal will produce electricity.
Alternative # 2 targets gas at electricity generation, combined with regulatory measures to curtail nuclear and coal and results in high prices for oil and gas. The beneficiaries of this approach are the oil companies and OPEC.
LNG export will result in a global price for LNG, adjusted for transportation and a global price for natural gas adjusted for the cost of LNG and transportation. If Western reserves of LNG are exhausted in 20-30 years, OPEC will have the ability to shut down our transportation and Russia, Iran and Qatar will have the ability to turn off our electricity. We had better pray for methane hydrates to become economical.
Gas to Liquids converts natural gas to gasoline. An intermediate product is methanol, an excellent transportation fuel. Simple modifications, less than $100 for existing cars and closer to $0 for new cars, allow current autos to run on a gasoline methanol ethanol blend. It is more economic to stop the conversion at methanol and make cheap conversion to the cars instead. Methanol is also a cleaner fuel than gasoline. So why does the EPA prevent the use of methanol in automobiles?
Ethanol would disappear without subsidies affecting the Republican farm States.
If the economics of GTL made sense, it would be more than a novelty.
Shell’s Pearl GTL plant is Qatar, where the natural gas is free, turns 1.6 Bcf/d into 140,000 bbl/d of refined petroleum products.
1.6 Bcf is the energy equivalent of 282,700 bbl of crude oil, which would yield 209,000 bbl of refined products. GTL is only 67% as efficient as crude oil.
The U.S. consumes about 9.3 million barrels of gasoline per day. It would require 107 Bcf/d to produce 9.3 million bb/d of gasoline. The U.S. produces about 73 Bcf/d of natural gas.
If GTL for domestic motor fuels made more economic sense than LNG exports, industry would be clamoring for GTL permits rather than LNG permits.
Chris 4692
April 28, 2017 10:50 am
The U S will be the US. Saudi Arabia will pound sand.
Yeah, I don’t think I’d like to be called “the Saudi Arabia” of anything.
Tom Halla
April 28, 2017 10:50 am
This is also good news for the US coal industry. If the long term price of gas in the US approaches the world price of over $5, then coal powered electric plants are economic. I did see estimates that the break-even point was about $4 on natural gas.
The US cost of pipeline natural gas has to be at least $2/mmBTU below global to be worth even considering liquefying and shipping. The contracts I’m most familiar with have about a $3.50/mmBTU markup from US pipeline prices (HH) just to the price of LNG at the dock in Louisiana. Then it costs another $1.00-$3.00/mmBTU to ship it.
I’m a big fan of LNG, but it is definitely a more expensive product than US pipeline natural gas. In a sense it is like comparing the cost of crude oil to the cost of refined gasoline. Gasoline simply costs more due to the refining step. LNG costs more because of both the liquefying and the shipping.
Thanks Greg. I knew liquefying and shipping was expensive but didn’t have the data.
John Furst
April 28, 2017 10:53 am
Thanks . Comprehensive.
Does the reference material already reflect the massive closure of coal-fired electric generation? The only fuel for coal generation lost is gas. Won’t new gas-fired generation plus LNG markets raise prices, and then increase production of gas?
gregfreemyer
April 28, 2017 11:16 am
I’m very encouraged to see such a detailed presentation here.
2 key things ensure everyone notes:
1) From the main post:
LNG export capacity (Bcf/yr):
Existing: 584
Under Construction: 3,923
Approved, Not Under Construction: 2,478
Total Existing, Under Construction and Approved: 6,986
Total Existing, Under Construction, Approved and Proposed: 16,111
2,478 BCF/yr of approved capacity isn’t yet being built. That’s not a gov’t issue, it’s a lack of customers issue. LNG production “trains” are very expensive to built. ~$1B for each 50 BCF/year of capacity. So another $50B worth of trains have already been approved, but no one is building because they don’t have a spare $50B to spend.
The traditional way is to sign a 20-year long take-or-pay contract with a buyer, then use that contract as collateral to issue bonds. One one US exporter signed a significant contract last year that I know of. (Cheniere and it was only for enough LNG to justify half of a production train).
2) LNG is expensive to liquify from gas form and expensive to transport. Typical transport cost to Asia is $2.50/mmBTU or more. So if LNG is selling in Asia for $6/mmBTU (as it is today), you have to be able to put it on a tanker for $3.50/mmBTU to justify shipping it halfway around the globe. That was doable over the winter, but not now, and likely not again until next winter.
FYI: the main liquefaction cost is the interest and depreciation on the production trains. The ones Cheniere built are $4B each. They have a lot of capital expense to recoup via LNG sales.
61% of the FERC-approved LNG capacity is currently under construction. The “approved, but not under construction” capacity could be due to a lack of customers or a lot of other factors: Securing financing, pre-construction work, logistics.
Regarding LNG costs, $6/mcf in Asia doesn’t leave much room for profit.
LNG has some fixed costs above and beyond the cost of the raw natural gas. These costs are typically amortized over 20 years. The most significant of those fixed costs are:
1) Liquification plant $1.1 per Mcf +/- $0.20
2) Shipping costs (LNG tankers and operating costs) $0.70 per Mcf +/- $0.30 depending on distance.
3) Cost for regasification $0.35 per Mcf.
The costs come out to $2.15 per Mcf. This does not include the costs to develop the natural gas resource and get it to to the LNG facility.
David,
I’m extremely pro-LNG, but let me bring some more reality to the discussion.
================
You wrote the main article so you obviously like details. Check out Cheniere’s big presentation from just a week ago. It’s clearly slanted to have pro-US / pro-Cheniere data, so consider it to be slanted in favor of US LNG production. https://seekingalpha.com/article/4063534-cheniere-energy-inc-investor-presentation-slideshow
Lots of details in there about how the company works and where they are getting natural gas from.
A single $4B production train of Cheniere’s can produce 4.5 mtpa (Million tons per annum). (See slide 116).
Next, take a look at slide 85: $2.50/mmBTU to ship LNG to Asia.
I don’t know where you got “$0.70 per Mcf +/- $0.30 depending on distance.”, but it is inconsistent with what the industry is saying.
$1/mmBTU is about as low as I see for US to Europe or US to South America. (See slide 86). US to Asia is consistently quoted at over $2/mmBTU, and I’ve seen $3/mmBTU used in the past.
Now jump back to slide 61.
~25 mtpa of LNG multi-year contracts signed globally in all of 2016 (that’s less than 6 trains worth globally)
75% of the 2016 multi-year contracted volume went to existing LNG producers producing from existing plants, so you’re only looking at ~6 mpta of new production needed by those contracts. That’s one new big train to satisfy incremental global buyer demand in 2016.
And that train can be built anywhere in the world.
(Cheniere sold ~2 mpta via a multi-year contract last year, but they haven’t pulled the trigger on building another train yet. They want to sign another 2 mpta contract first.)
==
It doesn’t say on that slide, but what was happening is lots of spot market sales. So LNG purchasing went up significantly in 2016, but most buyers were buying on the spot market because it was so cost effective.
==
Look at slide 66.
In 2014, there was ~30 mtpa of FIDs made (final investment decisions).
In 2016, there was ~5 mtpa of FID. That’s effectively one large train. And these are again global numbers.
So only 1 large LNG train globally got the financial go ahead to proceed to construction. It’s a perfect match to the fact that only one LNG train’s worth of long term contracts were signed.
I suspect it is multiple smaller trains. Elba Island LNG got its FID in 2016 and it is a collection of smaller modular LNG trains with a combined output of ~2 mtpa. [Off the coast of Georgia (USA)].
I don’t know where the other 2 or 3 mtpa worth of new trains was approved for. But that is NOT enough to be a large $4B LNG train.
BTW: The Gorgan operation off the coast of Australia was multiple times as expensive to build as Cheniere’s Sabine Pass operation, but they have similar production capacities.
==
Slide 67
Cheniere claims their Project Breakeven is $7.5 – $8.5 and that projects in the rest of the world have higher breakeven prices.
==========
The trouble is the current spot market is well below what producers need in the long run to justify building LNG trains. So the existing and under-construction tains will satisfy the global market until demand grows enough to drive the price back up above breakeven.
Until the prices go up, there is nothing the Trump Admin can do to get more trains built. Only the super-majors (Shell/BP/Exxon/etc.) can afford to build a $4B train without having a guaranteed buyer.
==
Toshiba thought a few years ago that it could make a killing by signing one of those 20-year take-or-pay contracts, and then selling the LNG they were committed to in the future.
Big mistake. Maybe a $8.5B mistake: https://www.bloomberg.com/news/articles/2017-01-19/unsold-u-s-gas-toshiba-s-next-threat-as-nuclear-unit-loss-looms
“The Japanese conglomerate said in a June filing it could face potential losses of 971.4 billion yen ($8.5 billion) at its power and infrastructure division, which the spokesman said is mostly due to its LNG contract in the U.S.”
“The ones [production trains] Cheniere built are $4B each.”
These are railroad trains you are talking about? I looked at one link on Google and it described one production train as made up of 82 “units”. So what are we talking about here, a couple of locomotives and 82 railcars?
Funny just a few years back during the “we don’t have much oil and natural gas left era” we were building facilities to receive imported gas and LNG from far off places like the Gorgon field off Western Australia. Funny how technology flipped that so quickly.
Eagle Ford formation in south Texas turns to gas closer to the coast as kerogen is first cooked to petroleum and with increasing temperature, gas. The anticline is toward the coast, deeper is hotter and more pressure.
Absolute reserves are much larger than current plays. The US has more TTR only because of investment and technology. It isn’t geologically gifted. A true meritocracy.
gregfreemyer
April 28, 2017 11:48 am
“Sabine LA (Cheniere) has only been in operation for about 1 year. It has a capacity of 1.4 Bdf/d.”
That was true as of Dec 31, 2016. As of Mar 31, 2017 it is up to 2.1 Bcf/d. (~14BCF/week)
By the end of this year, we’re looking at 3.5 BCF/day (or more) for the continental US.
BTW: I’m not a big Obama fan, but he is the one that deserves all the credit for LNG exports between now and 2020. It takes years to build a LNG train the traditional way. Cheniere’s 7th train (Sabine Pass #5) commenced construction in June 2015. It won’t be in production until 4 years later (2019).
Morgan Kinder is building a modular LNG train (or set of trains) on Elba Island near Savannah. It is a faster process, but still it will take 2 1/2 years from the decision point to fully operational.
Trump’s Admin (ie. FERC) has issued one permit for 3 trains. Obama’s Admin (FERC) issued 15 permits for 25 trains. LNG is Obama’s party. Trump is just jumping on the bandwagon.
BTW: there is one big difference
Obama’s admin made the applicant show there was a likelihood they could find buyers before they issued the permits. It seems Trump’s admin won’t require that.
In my opinion, it won’t matter much. There are already numerous un-leveraged permits out there. Buyers disappeared from the long-term market in 2015 and 2016. Until they come back, no one is likely to commit to spending billions of dollars.
FERC is a somewhat independent commission. Neither Obama nor Teump played much, if any role, in the permit approval process.
Although, when Trump elevated a Republican to the top spot, the Democrat resigned, rather than accept the demotion, depriving FERC of a quorum. FERC has been paralyzed since.
15 permits in 8 years vs 1 in 3 months. Works out to 1.9/yr vs. 4/yr.
The true measure would be time from submission to approval. The recently approved permit was probably submitted last year and approved before FERC was paralyzed by the Democrat resignation.
To the extent anyone is jumping on bandwagons, its potential LNG exporters jumping on Cheniere’s bandwagon.
Duane
April 28, 2017 12:02 pm
Aside from the financial and market benefit of exporting LNG, as well as improvements in air quality from burning natural gas over coal, there are also the geopolitical benefits:
The single biggest hindrance on Putin and his quest to rebuild the former Soviet sphere of influence – which necessarily entails conquering and enslaving the non-Russian peoples who live within that sphere – is the current low price for oil and gas, which of course is directly related to the large supply of same. Low oil prices reduce his ability to spend on his military, and also reduces his pestilential influence in other ways. That in turn improves human rights, promotes geopolitical instability, reduces war and all the bad stuff that goes with war, and reduces our and our allies’ expenditures in both fighting wars and in preventing wars.
What’s not to like about all that?
A much more effective and long term way to accomplish that is to target coal and nuclear to baseload electricity production and oil and natural gas to the transportation sector.
Reducing the regulatory constraints on nuclear, coal, and methanol is all that is required to make this happen. From an engineering perspective the processes are economical.
The problem is that in order to reduce the regulatory burdens sufficiently to do this, either the Clean Air Act would have to be amended to clearly state that CO2 was not a pollutant, or SCOTUS would have to over-turn Massachusetts vs. EPA.
CAA needs to be repealed not amended. Every thing it is supposed to do is already covered under several other EPA mandates/regulations.Adding layer upon layer of laws/regulations/mandates on top of already existing laws/regulations/mandates is the problem. It all needs stripped down to its basic components and all the repetitive crap done away with. Problem is you first have to get rid of all the repetitive layers of bureaucracy and bureaucrats who will fight tooth&nail to keep as much of the repeatedly repetitive redundant laws/regulations/mandates as possible. It all puts money in their pockets and power over others in their hands.
Repealing or seriously amending CAA would take at least 60 votes in the Senate… A great idea on paper.
Ron Williams
April 28, 2017 12:16 pm
I am a significant investor in oil and some NG, but more domestic gas for local use. Will probably go short those companies specific to LNG if the buildout continues. The reason is that Russia has signed long term deals with China for NG for delivery by future pipelines, which will keep a lid on wholesale LNG prices. The cost to liquify and ship is nearly the price for the gas itself, presently. Why risk an investment in that? And the price may never justify the infrastructure cost of such high capital expenditure and then a bit higher prices, coal will kick in at $5 making sure a lower return on LNG forever. Or at least my life time.
While Canada had probably missed the boat so to speak in building their LNG industry, their cost to compress is a lot lower at 12 – 13 C average temp at Prince Rupert compared to OZ, or gulf states at double the average temps as Canada/Alaska. So another reason why if Canada builds major infrastructure for LNG, then the lid is even more secure on permanent low LNG prices, and relatively higher domestic NG prices.
Canada may not get built anytime soon, because of permanent loony politics. No pun intended…
The higher domestic price will hurt local economies, so long on NG locally, and especially long oil since demand will surely outstrip supply in the next 5-10 years. But short LNG long term. If you want to preserve your wealth…follow the money.
So far this hasn’t come to fruition. Maybe we have hit the bottom, but investing in O&G in the last 4 months has been a disaster, especially if you invested in Canadian companies. WTI going to $60 (the basic floor for a lot of drillers to recoup their investments) is still in question. If it weren’t for Libya, Venezuela, Nigeria and some others shooting themselves in the foot, we’d be really swimming in oil. Be careful out there.
You are certainly right about the basket case countries you mention above.
But what a time to buy very high quality companies for a steep discount. Especially in Canada, which is highly regarded as safe haven. The sell off especially for Canada (the last 4 months) was more about a better (short term) return from the frackers in US, and a bit on currency. And the anticipated border adjustment tax, and a dozen other reasons as usual, including incompetent governance in Canada that now has the international companies selling their oil sand investments. Was certainly a good time to be short oil temporally the last 4 months, if not the last 3 years, but that was for different reasons. And especially being short for the junior oil plays, while recently acquiring the majors. It’s been like shooting fish in a barrel.
OPEC sort of learnt a lesson in selling more oil into a saturated market, in that they just got less dollars for more output, so appears they are on track to keep their current commitments. Not because they are honest, but that it doesn’t make sense to dump oil at a loss. The Saudi’s started it right after Russia took Crimea, and meddling in Ukraine. US promised Saudi’s unconditional support (and substantive arms sales) from Iran in a looming climate of war a few years back over their nuclear program, so Saudi’s increased production that aligned with new higher output from the US frackers. It maybe worked the first year in containing Russia on further expansion into Ukraine and the Baltics, but it soon acquired a life of its own after everyone had to dump oil into a low global price just to stay afloat. You have probably noticed that Russia no longer uses shutting off its oil and gas supplies as a weapon to Europe anymore. But now everyone is suffering somewhat with $50 oil. IMO, no where to go but up in the long term scheme for oil. But lots of bumps and bruises on the way for sure. LNG, not so much, but I have sure been wrong before too.
As usual timing is everything. It is good to understand geopolitics in this business, as well as read the paper and watch the news. I would (am) bet dollars to donuts that oil is a lot higher in 5 years, as compared to LNG.
Natural Gas as either CNG or LNG is starting to impact the diesel market.
I think we’re approaching 1.5 million gallons a day of LNG production for domestic use (part of that maritime/offshore). None of that comes from Cheniere. They don’t have a permit for domestic use. (To busy exporting massive volumes to worry about small domestic deliveries.)
That LNG is delivered to vehicles via 132 private/public LNG fuel stations: http://www.afdc.energy.gov/locator/stations/results?utf8=%E2%9C%93&location=&fuel=LNG&private=false&private=true&planned=false&owner=all&payment=all&radius=false&radius_miles=5&lng_vehicle_class=all
Several of those stations are private stations in O&G territory. Having fracking engines, or even just pickup trucks, burning natural gas is a big savings for E&P companies. Many 10,000-160,000 gallon/day LNG production facilities are owned by E&P companies, primarily for their own internal consumption.
Outside of O&G, UPS alone has 1,000-1,500 LNG fueled semi-trucks. FedEx is finally getting in on the act.
Thousands of other LNG fueled trucks operate out of the Long Beach port in particular.
The last couple years, the refuse industry (Waste Management, etc) have been buying over 50% of their vehicles as CNG fueled.
California in particular might be diesel free in 20 years as they implement stricter and stricter anti-pollution controls. The only way to meet the strictest emission regulations they are considering is electric vehicles, natural gas, or hydrogen fueled. For heavy duty diesel applications, CNG/LNG seems to be the best choice at this point.
Ron,
In general LNG companies aren’t speculators. As an example Cheniere pre-sold ~87% of their nominal production for 20-years for each of the trains before deciding to borrow the billions needed to build their facilities. Those are take-or-pay contracts.
By summer 2018, Cheniere should have 4 large contracts generating huge monthly fees. The total is $165M per month. That $165M all goes exclusively to SG&A, interest, amortization, dividends, and internal company growth opportunities.
By 2020, it goes to $310M/month in fixed fees. That’s ~$3.5B / year in guaranteed gross profit.
If the buyers on those contracts actually want to take delivery of the LNG they contracted for, then they get to buy it at Cheniere’s marginal cost (HH*115%). So there is no gross profit in the actual day-to-day delivery of the LNG.
Cheniere “earned” all their money years ago when they signed those 20-year contracts. Now all they have to do is get the rest of the plants running and keep them running.
What the market does as far as HH or Russia, etc. is concerned can only help Cheniere expand, it can’t stop it from being a huge success over the next 20-years.
If you don’t want to invest, that’s your decision. Me? I’m invested in Cheniere.
Greg, from the sounds of things you will do fine since as you say, Cheniere pre-sold the majority of production for 20 years. Timing is everything, and sounds like you bought in when things were a little bit rosier times for LNG. It will be interesting to see how this story works out, and I will follow the details closely.
There are still a lot of unknowns how things will pan out with LNG, so my bet is more oily than gassy. But I hope you do well.
I equate present day LNG logistics to that of building a new refinery, and why so few have been built the last 30 years especially in North America. A fairly low margin business. And a huge capital cost up front with risk on several fronts. Oil doesn’t have as much fixed risk as LNG, although some in Canada with the oil sands may argue that with a cap on future production by a socialist provincial gov’t, a provincial/national carbon tax just announced last year, as well as pipeline politics raging up like a forest fire in spring. But that will change.
I am betting on it.
kramer
April 28, 2017 12:41 pm
We should not be exporting our fossil fuels.
We should support the rest of the world switching to renewables and we can stay on fossil fuels. This way, we can ‘charge’ the rest of the world for helping to fertilize their crops and forests and also for helping to save a bit on their heating bills.
“We should support the rest of the world switching to renewables ”
So you want the rest of the world to have to cope with an intermittent, unreliable power supply, that is basically useless for anything.
That is NOT very nice of you.
Oh, well…their countries and their decision.
I think they will one by one get theirs heads out of their asses when the blackouts become a big enough problem to cripple economies and cause riots and deaths.
Renewables are just an excuse to justify conversion from coal to natural gas for electricity production. Natural gas without renewables is both more economic and generates less CO2.
Renewables cant exist without natural gas because 1) renewables are intermittent and can not be adjusted to meet demand, 2) only natural gas electricity output can be adjusted fast enough to compensate for renewable intermittency, and 3) electricity storage is not economic.
Renewables can exist without coal, natural gas and/or nuclear power. You just wouldn’t be able to count on having electricity when the wind and/or the Sun weren’t cooperating.
Renewables are a placebo, for the purpose of weaning the public off of fossil fuels, including natural gas.
The fact that the government went after coal first, doesn’t mean they won’t come after natural gas next.
“Renewables can exist without coal, natural gas and/or nuclear power. You just wouldnāt be able to count on having electricity when the wind and/or the Sun werenāt cooperating.” So, in fact, they can’t unless government funds them and forces people to use them. As is the case now.
People can choose to have unreliable sources of electricity… A lot of people are dumb enough to think that they can have 100% renewables and reliable electricity.
The government that funds renewables and coerces us to use them… was elected by us. To quote Pogo, “We have met the enemy and they is us.”
I have never voted for anyone who is anti oil, coal or nuclear, so no, I did not elect them. And yet they are screwing me at every turn and I am supposed to just sit back and take it.
TA
April 28, 2017 2:12 pm
Thanks for this comprehesive article, David Middleton. I think it is especially helpful to me because I am not that familiar with Liquified Natural Gas operations. I’m still trying to figure out what a production train is exactly.
Thanks for the investment advice, Ron Williams. š
A production train is huge collection of refrigeration pipes. Look at the back or bottom of a refrigerator. That’s what you get for $1000. Now scale it up 4,000x and you see what you get for $4B. Natural gas has to be very, very cold to be liquid. (-259 fahrenheit)
They keep it cold by storing in large insulated tanks and letting it slowly boil off. The boil-off can be burned or re-liquefied.
TA,
They’ve done some test transports of LNG by rail up in Alaska. As well as around the world. Here’s one example: ~30,000 gallons: http://files.chartindustries.com/14722936_LNG_Railcars.pdf
You could use that for “small” deliveries.
But the tanker loads coming out of Sabine Pass are probably too big to be moved efficiently by rail. About 12 gallons per mmBTU. A typical tanker holds 3.5 million mmBTU worth, or 40 million gallons worth.
That’s over 1000 train cars per tanker. Sabine Pass has a tanker leaving every other day at present, so over 500 train cars a day.
Also, the distances are normally pretty far, but some of the tankers have only gone to the Gulf coast of Mexico.
Where it would make sense is if Houston (etc.) were to put in a LNG bunkering capability for large ships. A train to bring in LNG as marine fuel would make a lot of sense.
What a cruel dilemma for liberal-green German energy consumers! The choice is either good old home produced open cast dirty lignite coal, or 100x cleaner gas fracked in Trumpamerica. I guess best just not think about it and follow their leaders because they’re always right.
spen
April 28, 2017 2:48 pm
Some leading economists keep telling us that oil and gas are yesterday’s energy so investors should beware of stranded assets!
These economists are drinking from the AGW bandwagon and wishfully thinking this based upon their world view. But look at the stats, and that 3/4+ of the energy use in the world is fossil fuel, and that won’t be changing anytime soon. It can’t, because there is nothing that large to replace that basic fact, unless something catastrophic happens to humankind and we use very little. Even the buildout of renewables the last 10-15 years is drop in the bucket compared to our energy consumption from oil, gas and coal.
I have few investments in renewables except those imbedded into the larger oil companies who are trying to purchase ‘social licence’ and/or also serves as a great capital loss from income from fossil based fuel income. Which can be carried forward indefinitely in most jurisdictions. If you know anything on the immediate horizon that will even begin to replace fossil fuels currently, please try to let me know so I can hire you to run my portfolio.
My questions are this. There are ‘folks’ who got wind energy rights on the east coast. Does that include directly or indirectly certain mineral rights? I also add that wind projects in the same region sit squarely on various mineral reserves.
1: how did they acquire such info and at what cost?
2: What is the background of said entities?
The wind leases do not include subsurface minerals.
The leases were awarded through competitive bidding.
The “said entities” are companies qualified to operate wind farms on the U.S. OCS.
Nuclear will replace fossil fuels but it will be a 50 year transition after nuclear regulations are reformed to account for walk away safe reactors and biological radiation damage repair mechanisms.
Current Light Water Reactors are the safest source of electricity by a wide margin. Sodium Fast Reactors and liquid fuel reactors are about 1000 times safer.
Abandoning the Linear No Threshold Hypothesis, that is based upon junk science, will allow radiation safety standards to be raised by 1000 times.
These two developments render the NRC regulatory model obsolete. The current regulatory model (mandatory evacuation) kills a lot more people than radiation. A reformed regulatory model based upon the Federal Aviation Agency would allow nuclear to flourish. Airplanes kill more people per year than nuclear has killed in its history.
Hell… “More people died at Chappaquiddick than died at Three Mile Island.”
Nuclear power is very safe and nuclear waste disposal would be a trivial problem if not for NIMBY’ism.
General Electric Electric Boat Division produces effective and efficient AND safe nuclear/electric systems on a regular basis. Mayhaps the people of the world should be getting their advice on nuclear power from them and not from idiots.
Great post as usual, David.
And US status could be even better , in terms of exports, if we get a nat gas pipeline from AK North Slope. Stay tuned for that !
2hotel9
April 28, 2017 5:32 pm
“Can the US become the Saudi Arabia of natural gas?” We already are. Next stupid question, please.
Screw export, raise domestic sales/consumption. People across the water want LNG then let them do business with the House of Saud, we have done enough of that. It is long past time to kill OPEC.
And I still say screw export, develop domestic and tell the rest of the world to pound sand, especially the House of Saud and lump Putin in with them. I see here in western PA that gas pipelines are going in all over. Good! More domestic use was the whole point of expanding gas extraction in America, so build more gas fired electric plants, more gas fired steam systems in manufacturing and commercial building heat systems, convert more fleet vehicles over to gas and screw OPEC right into the sand.
David, at what time scale are we a net importer still?
I too see the articles that it won’t be until 2018 we’re a net exporter, but on the days a tanker leaves Sabine Pass we are typically a net exporter for the day. That’s about 15 days a month so far this year, or half the days so far this year. (Cheniere’s third train just started making LNG in Jan.)
And I think I recall we were a net exporter for the overall month of Nov 2016, with just 2 trains operating.
Surely “in the shoulder season” we will be a net exporter this year. I would even expect to be a net exporter this summer. Were Jan/Feb imports so big as to push the overall 2017 year to be an importer?
I can’t help but wonder if the 2018 date is “out of date”.
It could be out of date. By net exporter, I am referring to an annual net.
Clearly, U.S. natural gas exports are a significant growth industry over the next few decades. The EIA reference case has the U.S. exporting about 7 Tcf/yr (gross) by 2030-40. That would match Russia’s current gas export volume.
David, I found the monthly data: https://www.eia.gov/dnav/ng/hist/n9180us1m.htm
19 BCF imported in Jan. 0 in Feb.
Cheniere exported about 50 BCF each of those months, so their exports are moving the needle. It will be interesting to watch, but I’d guess 2017 will be the first year as a net exporter.
Its amazing isn’t it? I remember how baffled I was to read that the US is the number one importer of beef and the number 2 exporter. Reading further I found we imported Argentinian beef and exported our hormone beef. Pretty good deal, No radioactive beef for big bucks for the mediaized US beef.
But about this Natural Gas, What’s the deal there? Is it just a tax scam?
After all shale gas does have significant problems in leaving contaminated water behind. No where in this article does it note that the WolfCamp shale in Texas is the mother of all shale deposits. AND that is the natural gas we’ll be drawing from for export. Is the import/export of natural gas anything more than a handshake deal between big corporates?
The Wolfcamp is primarily an oil play. This article is not about the merits of various shale plays.
This article is about how much natural gas U.S. producers are capable of exporting. It is not about crackhead conspiracy theories about the general merits of imports, exports and free trade.
@ David Middleton
Excellent article.
It is not crackpot conspiracy theory that US regulations are pushing LNG exports and domestic natural gas consumption for electricity production.
Both nuclear and coal are excellent choices for baseload electricity. The US has very large reserves for both stretching into centuries. Both nuclear and coal are being destroyed via regulation. This increases demand for natural gas for electricity production. All the government mandates and subsidies for renewables result in increased demand for natural gas for electricity to deal with the intermittency of renewables.
With respect to natural gas exports to Japan and Europe for electricity generation, this requires regulatory relief for the construction of LNG terminals. Where is the regulatory relief for the use of natural gas to methanol as a transportation fuel? EPA regulations prevent methanol from being used as a transportation fuel.
If regulatory policy promoted natural gas for transportation rather than electricity production, we would have low oil and gas prices, and low electricity prices and very long available reserves (centuries?).
Current regulatory policy, promoting NG for domestic electricity production and LNG exports, result in high oil and gas prices, high electricity prices, and reserves for decades.
Hard to understand except for the support of the Greens and the oil companies for policies that prop up the OPEC cartel and will bring forth a new cartel for natural gas (Russia, Iran, and Qatar) in the 30-50 year time horizon when US NG reserves are dwindling.
We had better pray for economic methane hydrates in this time frame or the West(US, Europe, Japan) will be dependent upon the Middle East/Russia for both transportation and electricity.
The comparison of Norway to the UK in terms of the long term result of offshore oil and gas policy is instructive. As the oil fields dry up, Norway has a $1 trillion sovereign wealth fund and UK is scrambling to meet its energy needs.
Its amazing isnāt it? I remember how baffled I was to read that the US is the number one importer of beef and the number 2 exporter. Reading further I found we imported Argentinian beef and exported our hormone beef. Pretty good deal, No radioactive beef for big bucks for the mediaized US beef.
But about this Natural Gas, Whatās the deal there? Is it just a tax scam?
After all shale gas does have significant problems in leaving contaminated water behind. No where in this article does it note that the WolfCamp shale in Texas is the mother of all shale deposits. AND that is the natural gas weāll be drawing from for export. Is the import/export of natural gas anything more than a handshake deal between big corporates?
You are correct that regulatory malfeasance has crippled the U.S. nuclear power industry and tried to kill the coal industry… And, given the opportunity, they would try to kill the oil & gas industry.
Coal and nuclear are excellent choices for base load, as is natural gas.
Our natural gas reserves won’t be dwindling on any time horizon, much less over the next 30-50 years, unless government tries to restrict fracking and/or LNG exports.
My explanation of “proved reserves” seems to have been lost on the anti-export crowd.
Methane hydrates and other technically unrecoverable gas resources would provide mote than 1,000 years of current U.S. natural gas production. If or when someone figures out a way to economically recover those resources, it will be almost as good as controlling nuclear fusion.
David,
Excellent article. I also worked as an engineer in the oil and gas industry for ARAMCO in Saudi Arabia. I worked in planning and supply coordinating getting oil and gas to export terminals and local manufacturing. I gained an understanding oil/gas macro economics (e.g.which country is producing what types of products and how much). Most policy makers and the general public have no clue concerning the scale or how much energy we have in the US.
When I started reading the research reports from Penn State in 2013 concerning the increase in estimated reserves in Marcellus – I was blown away.
The secondary effect that’s starting in Louisiana, Pennsylvania and other states is the building of manufacturing and chemical plants using local natural gas as feedstock. Natural gas costs are one of the biggest drivers of the cost of production in the industries. Large multi-nationals from all over the world (e.g. Germany, Brazil, Thailand etc.) are building manufacturing plants. This is huge for our country.
We now have the cheapest feedstock energy, excellent robotics, and private capitol formation that will start a revolution in manufacturing here.
Gorgon is one huge money pit into which Chevron, Exxon, and others are not pouring money but pumping it (using the same high pressure injection pumps more measured heads are using for fracking). Decision was made long ago with no-off ramp. The investment is huge but shareholders will not see a return commensurate with risk (and my not see any return at all).
When the oil company narrative involves how much they are protecting the ‘fragile’ environment of the God forsaken islands on which they build their stuff, you just know this project went south a long time ago, and nobody knows how to make it go away. Maybe this is why Tillerson is drinking the CAGW Kool-Aid.
Retired Kit P
April 29, 2017 9:47 am
I see a pattern over the last 50 years. Failed predictions.
We drove by the pictured LNG facility in the motorhome when it was under construction. What I remember most was the road sign that āalligator crossingā. When alligators can jump as high as deer, I will worry about hitting them.
From a distance, it looked like a nuke plant containment structures. Of course no one would build nuke plants there because of hurricanes. Nuke plants are required to be designed to withstand both hurricanes and direct hit from airplanes.
Before commenting, please be subtle. There are crazy people out there. Stupid ones too. For those with irrational fear of radiation, there is a long list of things where fear is rational. LNG is one of them.
A few years back, a LNG fueled power plant was proposed for Mare Island, a retired nuke sub shipyard near Vallejo, Ca. Picture a LNG super tanker (they are awesum, bigger than a nuke aircraft carrier) passing under the golden gate bridge and heading through bays surrounded by hills and large populations.
Being old school, I still think that making baseload electricity with natural gas should be criminal because it has many important uses such as making ammonia. We have coal and nuclear.
Nothing has changed in that regard.
Back in 1983, when I was living in a different city than Mpls/St. Paul, on one of my visits “home”, my Father asked me to visit with a friend who ran the Ohio/Minnesota Oil company. Now this seemed curious at first, but when I did spend 3 hours with this man, I found out what it was all about. At that time, his concern (consisting of about 10 people and numerous contractors, was leasing land in the Appalachian hills, over the Devonian (Marcellous? I forget) shale. They would put down 4000′ to 6000′ wells, about 14″ in diameter. Well logging all the way. They’d find the PLAY and put down a “fracking string” of explosives which were essentially, a bunch of armor piercing bullets. (About 1000 of them, about 30 to 100 feet worth..)
Then they’d fill the tube (pipe) with Sulfuric, Nitric and Hydrochloric acid. Pressurize to 5000 PSI with N2.
Drive that into the fractured region. Turn around and start “pumping”. If the well was succesful, it produced like 200,000 to 300,000 cubic feet of gas per day, and 2 to 5 barrels of crude.
I worked out the cost benefit (each operation cost about $800K at the time, and it was barely break even, over the life of the well (about 10 years). I asked my Father’s childhood friend, “Why would you invest in this?” He said it was because of TAX laws, and the “equivalent loss” for depreciation meant some people with certain income levels, essentially lowered their tax burden and “made money” even though on the surface it was a “break even” situation.
I had the cutz-pah (spelling…) to ask, (when I found out they did NO siesmic work, just leased an acre from an owner, and put the well down…it was that certain over much of the region you’d hit the oil/gas shale) “What amount could you recover if you COULD “economically” go after all the gas and oil in the shale?”
My Father’s friend said something that rings in my ears to this day (particularly considering LATERAL drilling, more complete fracking and the success of the Backken and the West Texas shale..) “Well Max, we could do that…conservative estimates are ….at current usage rates, about 100 to 150 years worth of gas and oil in that shale, but we can’t do that…economically.” I said, “What about the high estimates?” He said, “Oh, some folks think 500 to almost 1000 years worth…”
I’d recommend this map: https://www.google.com/search?q=map+of+oil+and+gas+shale+in+the+US&tbm=isch&imgil=8j9BdY0AKG4XJM%253A%253BLB56Jsl-dRrrXM%253Bhttp%25253A%25252F%25252Fwww.lib.utexas.edu%25252Fmaps%25252Fus_oil_and_gas_maps.html&source=iu&pf=m&fir=8j9BdY0AKG4XJM%253A%252CLB56Jsl-dRrrXM%252C_&usg=__BCuV6Bn3fq-UNrpvYAKVF9GIvyE%3D&biw=1920&bih=922&ved=0ahUKEwjZm5rt28rTAhVHxYMKHRxDBt0QyjcIOQ&ei=FBQFWdnBIceKjwSchpnoDQ#imgrc=8j9BdY0AKG4XJM: To get an idea of the Shale Gas/Oil potential in the USA.
WolfCamp shale in Texas the mother of all shale deposits. Agree with you, see above reply, that the gov regs are for tax deductions and write offs that have nothing to do with actual future economic concerns for the public. The corporates can write off everything just by abandoning a community and its jobs and building new 200 miles away.
Consider that the entire Middle East destruction is determined by the US future economic plans. The ‘pivot to Asia’ is a transportation scam that allows the US to use its WWII oceanic fleet to fill the designer-need of world sheriff for the trans oceanic fleet of container cargo ships from Asia to US shore. The current flap of N Korea is because we desperately need S Korea to lead the ducks to water. Should S Korea become Asian-ized and become part of the new Silk Road trans-Asia railroad, there would be no need for a world sheriff for the Pacific ocean and we would be moot.
The āpivot to Asiaā is a transportation scam that allows the US to use its WWII oceanic fleet to fill the designer-need of world sheriff for the trans oceanic fleet of container cargo ships from Asia to US shore.
The ONLY “WWII oceanic ships” left in the world are the two Liberty ships now in museum status. And the four WWII battleships now also laid up as museums. NO 25-man-crew, oil-fired boiler steam ship of 5,000 tons at 11 knots can compete with today’s high-efficiency direct-drive diesels pushing a 120,000 ton merchants at 16 knots with a 15 man crew. And today’s tankers easily double that 120,000 ton cargo ship. Your claim has been out-of-date since the mid-1960’s!
Bruce Cobb
April 29, 2017 5:02 pm
I wonder how much of the demand worldwide for NG is being fed by the faux concern for CAGW, and the fact that NG is relatively low-carbon? And what will happen to that demand when the inevitable happens; people realize that it was just a big s_cam? I see coal coming back, in a big way.
Bruce, Not that much in my opinion. In the US in 2015, there is no doubt NG cost less as fuel for electricity than coal did. In the US, the crossover is around $3.50-$4.00/mmBTU. It various based on the specific plant.
At least in the US, the switch was primarily driven by the low cost per mmBTU of natural gas.
I am not per se against exports.
But I would like to see us using it here to save us all a bundle of money.
Personally, I would prefer to see the US embark on a vast infrastructure project with the goal of having natural gas pipelines servicing every single home in the country.
This would save everyone who does not currently use natural gas a huge amount of money…it is by far the cheapest and cleanest and most efficient source of energy for heating, cooking, hot water, clothes drying and standby backup electricity generation.
And talk about a jobs plan!
One arguable reason the US became the country we are today is the Rural Electrification Act.
I would like to see a similar plan for natural gas in the US.
I had this idea several years ago, and have yet to hear anyone else ever talk about it.
Another thing…no matter your view on catastrophic anthropogenic global warming, nat gas is a great thing.
For those concerned that CO2 emissions are a problem…..it is a plain fact that natural gas usage is the reason why the US is now decreasing CO2 emissions every year for nearly ten years…we are now emitting less than in any year since 1992 and the number is still falling.
China is now the number one emitter of CO2 on the planet…emitting far more per year than the US ever did.
The reason why our emissions are falling and theirs is increasing?
They are bringing a new coal plant on line every week on average, and we are converting older generation facilities to combined cycle gas turbine…which, IIRC , is the most efficient way to make electricity of any method involving fossil fuels.
BTW…the reason for all of this, the single factor that makes it all possible?
Fracking!
Retired Kit P
April 30, 2017 2:28 pm
“The current flap of N Korea is because we desperately need S Korea to lead the ducks to water. Should S Korea become Asian-ized and become part of the new Silk Road trans-Asia railroad, there would be no need for a world sheriff for the Pacific ocean and we would be moot.”
Wow!
The current flap is the same old flap. The USSR installed puppet governments where it could after WWII. The problem with puppet governments is maybe the crazy loons cut the strings and the puppet masters loose control.
From an energy standpoint, S. Korea is an interesting story. The north got all the coal and the south got poverty. S. Korea, like Japan, turned to nuclear power to run industry.
Now S. Korea is one of the riches countries in the world and exporting nuclear power. S. Korea is building four large nukes in UAE. I suppose UAE has figured out they can sell the LNG saved those who do not want nukes.
What does exporting do to the domestic price of natural gas in the US?
I have seen it argued that the former export ban with all sales having to be on the domestic market kept shale gas prices low…
There was no “export” ban for natural gas. There were no LNG export terminals in the Lower 48 before 2016. Natural gas prices peaked at $8/mcf in 2008. They are currently around $3.30/mcf.
LNG exports will push domestic natural gas prices up some; but the macroeconomic benefits are far larger.
https://energy.gov/sites/prod/files/2015/12/f27/20151113_macro_impact_of_lng_exports_0.pdf
The industry would be healthier with nat gas at $4-5 than at $3. Still more economic than most coal. BE depends on coal source and transportation distance, but for the eastern US the BE on Powder River strip mined subbituminous is about $8.
Prolonged gas prices in the $2-3 range will eventually lead to a sharp reduction in shale gas production… Which will lead to higher gas prices.
Opening up access to the LNG market overseas, will lead to increased production here. So the effect on domestic prices will be muted.
David,
Yes, opening export markets will place pressure to increase production, but the supply increase will not occur immediately. There will be a lag between the supply ramp-up and demand increase. This brief disconnect will cause a spike in LNG prices. How long that spike persists depends on what impediments are placed in the path of production increases and transportation from well head to LNG processing.
Umm, its going to take a while to build the terminal.
Good planning should avoid such a spike.
While exporting LNG may be profitable short term for oil and gas companies for their bottom line, the domestic consumer winds up paying a lot more for domestic gas/use right now because of LNG exports.
I support the aborigines blockading the development of LNG export (they have different reasons) due to this lack of affordable NG for local use. Not the CO2 aspect of drilling more, but the rapid depletion of a resource that should be used for our own long term use in keeping energy affordable here at home. In 15-20 years or less, we won’t have affordable NG because it will all been sold to offshore markets for a song as LNG. Actually, Oz doesn’t have affordable access to NG right now due to LNG export, and soon the USA won’t either and energy prices will escalate causing higher inflation throughout the economy. And if Canada actually ever builds anything, then the global price of LNG will be stalled, but the domestic price will be higher than it would have been.
This is sort of like burning the furniture to keep the house warm. Short term thinking by the oil lobby to make a quick buck at the expense of local citizens who will require that energy locally for decades to come. We will all pay more for our energy forever, to give a quick buck to the oil and gas companies. It won’t last for long, and then we will all be out of affordable energy.
I got news for you. You don’t the LNG. The country doesn’t own the LNG. The oil companies that paid their own money to develop the resources own the LNG.
You have no more right to tell the oil companies that they can’t sell that LNG to whoever wants to buy it, then I do to tell you how far you are permitted to drive to work tomorrow.
Depends where you live!
If you like living in dictatorships, that’s your choice.
Your logic is a redux of Jimmy Carter economics. Gas was banned for producing electricity for ~30 years. Ronald Reagan said you can’t find it if you don’t look for it (oil and gas). Nobody believed or supported him for 20 years, particularly big oil who stuck to the tired old conventions. But the great, small time innovators were believers, and developed horizontal drilling and fracking shaking convention to the core. US gas reserves were stuck at 20 years for decades but ballooned to 200 years overnight.
Massive energy development driven by sound energy use and conservation at home and massive exports to our allies (UK, Western Europe, Japan, Korea, and Taiwan) will retain friends and influence people. It will also break the grip of Russian dependence on energy imports. Reagan was right. No more malaise. This will contribute to MAGA.
Mark,
who owns mineral deposits varies from country to country. For example the British North Sea oil
resources were developed by individual companies, in Norway they were developed by the state.
Now Britain has nothing to show for all of the North Sea oil while Norway has a sovereign wealth
fund of almost 1 trillion dollars and which owns about 1% of all shares worldwide. Neither country is
a dictatorship and it is clear which country made the best decision about how to exploit their resources.
“Geronimo April 28, 2017 at 6:46 pm”
Agreed. An opportunity the UK threw away.
Maybe we could just export politicians – certainly a reliable source of natural gas and inexhaustible at that.
This better sums up my opinion of Aussie pollies and inexhaustible supply…
For readers who have not watched Black Adder, I seriously recommend sourcing and watching some episodes.
Without exports there’s about a hundred year supply of natural gas. With exports, not so much. link
Reserves and resources aren’t static numbers.
CB in April 2017 USGS increased just the Bossierand Hayneville shales by 200Tcf. Marcellus is currently 410Tcf, and the underlying Utica is likely larger but without a decent TRR estimate since insufficiently drilled as yet.
TRR at the national level is a WAG at best.
roflmao.. peak gas, hey…
just like coal reserves. š
The more we used, the larger the reserves became.
Things change. I remember the 1970s energy crisis. Experts tell us that things will, or will not, happen. The thing is that, in such matters, experts are no better at predicting than is a dart-throwing chimp. link
Anytime a Malthusian makes a prediction, they are wrong.
Don’t forget GTL :(gas to liquids). Two major GTL plants (Sasol and Shell) were put on hold when oil prices collapsed. Smaller GTL pilot plants are being built, in operation, or in the proposal stage. We may not only be exporting LNG, but gasoline, diesel, jet fuel, lubricants, and other refined petroleum products.
Shell, Sasol and others are still going forward with plans for nat gas to higher value chemicals.
I agree on different grounds. The US has about half of the worlds known shale gas TRR (techically recoverable reserve, independent of price). This just got even bigger with the very new USGS TRR revision for the stacked Haynesville /Bossier shales along the Texas/Louisiana/Mississippi coast. Up from ~100 trillion scf to ~300 trillion scf. Marcellus is~ 410Tcf. Utica is probably bigger still, but insufficiently drilled tp now (because so deep) to make a TRR estimate. So with enough LNG export capacity, this will come about some day. Big win for CCGT electricity generation in resource poor places like Japan and Europe.
Japan and Europe should be installing nuclear for electricity. Wasting natural gas on electricity production is close to criminally shortsighted. Natural gas can be used in the transportation sector to cap the price of oil. The only beneficiaries of substituting natural gas for coal rather than substituting NG for oil is the oil and gas companies and OPEC.
Alternative #1 targets oil and gas at the transportation sector and results in low prices for both oil and gas. Nuclear and coal will produce electricity.
Alternative # 2 targets gas at electricity generation, combined with regulatory measures to curtail nuclear and coal and results in high prices for oil and gas. The beneficiaries of this approach are the oil companies and OPEC.
LNG export will result in a global price for LNG, adjusted for transportation and a global price for natural gas adjusted for the cost of LNG and transportation. If Western reserves of LNG are exhausted in 20-30 years, OPEC will have the ability to shut down our transportation and Russia, Iran and Qatar will have the ability to turn off our electricity. We had better pray for methane hydrates to become economical.
Gas to Liquids converts natural gas to gasoline. An intermediate product is methanol, an excellent transportation fuel. Simple modifications, less than $100 for existing cars and closer to $0 for new cars, allow current autos to run on a gasoline methanol ethanol blend. It is more economic to stop the conversion at methanol and make cheap conversion to the cars instead. Methanol is also a cleaner fuel than gasoline. So why does the EPA prevent the use of methanol in automobiles?
Ethanol would disappear without subsidies affecting the Republican farm States.
If the economics of GTL made sense, it would be more than a novelty.
Shell’s Pearl GTL plant is Qatar, where the natural gas is free, turns 1.6 Bcf/d into 140,000 bbl/d of refined petroleum products.
1.6 Bcf is the energy equivalent of 282,700 bbl of crude oil, which would yield 209,000 bbl of refined products. GTL is only 67% as efficient as crude oil.
The U.S. consumes about 9.3 million barrels of gasoline per day. It would require 107 Bcf/d to produce 9.3 million bb/d of gasoline. The U.S. produces about 73 Bcf/d of natural gas.
If GTL for domestic motor fuels made more economic sense than LNG exports, industry would be clamoring for GTL permits rather than LNG permits.
The U S will be the US. Saudi Arabia will pound sand.
Yeah, I don’t think I’d like to be called “the Saudi Arabia” of anything.
This is also good news for the US coal industry. If the long term price of gas in the US approaches the world price of over $5, then coal powered electric plants are economic. I did see estimates that the break-even point was about $4 on natural gas.
The US cost of pipeline natural gas has to be at least $2/mmBTU below global to be worth even considering liquefying and shipping. The contracts I’m most familiar with have about a $3.50/mmBTU markup from US pipeline prices (HH) just to the price of LNG at the dock in Louisiana. Then it costs another $1.00-$3.00/mmBTU to ship it.
I’m a big fan of LNG, but it is definitely a more expensive product than US pipeline natural gas. In a sense it is like comparing the cost of crude oil to the cost of refined gasoline. Gasoline simply costs more due to the refining step. LNG costs more because of both the liquefying and the shipping.
Thanks Greg. I knew liquefying and shipping was expensive but didn’t have the data.
Thanks . Comprehensive.
Does the reference material already reflect the massive closure of coal-fired electric generation? The only fuel for coal generation lost is gas. Won’t new gas-fired generation plus LNG markets raise prices, and then increase production of gas?
I’m very encouraged to see such a detailed presentation here.
2 key things ensure everyone notes:
1) From the main post:
LNG export capacity (Bcf/yr):
Existing: 584
Under Construction: 3,923
Approved, Not Under Construction: 2,478
Total Existing, Under Construction and Approved: 6,986
Total Existing, Under Construction, Approved and Proposed: 16,111
2,478 BCF/yr of approved capacity isn’t yet being built. That’s not a gov’t issue, it’s a lack of customers issue. LNG production “trains” are very expensive to built. ~$1B for each 50 BCF/year of capacity. So another $50B worth of trains have already been approved, but no one is building because they don’t have a spare $50B to spend.
The traditional way is to sign a 20-year long take-or-pay contract with a buyer, then use that contract as collateral to issue bonds. One one US exporter signed a significant contract last year that I know of. (Cheniere and it was only for enough LNG to justify half of a production train).
2) LNG is expensive to liquify from gas form and expensive to transport. Typical transport cost to Asia is $2.50/mmBTU or more. So if LNG is selling in Asia for $6/mmBTU (as it is today), you have to be able to put it on a tanker for $3.50/mmBTU to justify shipping it halfway around the globe. That was doable over the winter, but not now, and likely not again until next winter.
FYI: the main liquefaction cost is the interest and depreciation on the production trains. The ones Cheniere built are $4B each. They have a lot of capital expense to recoup via LNG sales.
61% of the FERC-approved LNG capacity is currently under construction. The “approved, but not under construction” capacity could be due to a lack of customers or a lot of other factors: Securing financing, pre-construction work, logistics.
Regarding LNG costs, $6/mcf in Asia doesn’t leave much room for profit.
http://shareholdersunite.com/the-ioc-files-useful-background-material/the-economics-of-lng/
The cost to LNG & ship ranges from $1.65 to $2.65 per mcf. $3.50/mcf at the wellhead works out to $5.15 to $6.15/mcf.
Of course, they aren’t making these investments under that assumption that natural gas will remain in the $3 range.
https://knoema.com/ncszerf/natural-gas-prices-forecast-long-term-2017-to-2030-data-and-charts
David,
I’m extremely pro-LNG, but let me bring some more reality to the discussion.
================
You wrote the main article so you obviously like details. Check out Cheniere’s big presentation from just a week ago. It’s clearly slanted to have pro-US / pro-Cheniere data, so consider it to be slanted in favor of US LNG production.
https://seekingalpha.com/article/4063534-cheniere-energy-inc-investor-presentation-slideshow
Lots of details in there about how the company works and where they are getting natural gas from.
A single $4B production train of Cheniere’s can produce 4.5 mtpa (Million tons per annum). (See slide 116).
Next, take a look at slide 85: $2.50/mmBTU to ship LNG to Asia.
I don’t know where you got “$0.70 per Mcf +/- $0.30 depending on distance.”, but it is inconsistent with what the industry is saying.
$1/mmBTU is about as low as I see for US to Europe or US to South America. (See slide 86). US to Asia is consistently quoted at over $2/mmBTU, and I’ve seen $3/mmBTU used in the past.
Now jump back to slide 61.
~25 mtpa of LNG multi-year contracts signed globally in all of 2016 (that’s less than 6 trains worth globally)
75% of the 2016 multi-year contracted volume went to existing LNG producers producing from existing plants, so you’re only looking at ~6 mpta of new production needed by those contracts. That’s one new big train to satisfy incremental global buyer demand in 2016.
And that train can be built anywhere in the world.
(Cheniere sold ~2 mpta via a multi-year contract last year, but they haven’t pulled the trigger on building another train yet. They want to sign another 2 mpta contract first.)
==
It doesn’t say on that slide, but what was happening is lots of spot market sales. So LNG purchasing went up significantly in 2016, but most buyers were buying on the spot market because it was so cost effective.
==
Look at slide 66.
In 2014, there was ~30 mtpa of FIDs made (final investment decisions).
In 2016, there was ~5 mtpa of FID. That’s effectively one large train. And these are again global numbers.
So only 1 large LNG train globally got the financial go ahead to proceed to construction. It’s a perfect match to the fact that only one LNG train’s worth of long term contracts were signed.
I suspect it is multiple smaller trains. Elba Island LNG got its FID in 2016 and it is a collection of smaller modular LNG trains with a combined output of ~2 mtpa. [Off the coast of Georgia (USA)].
I don’t know where the other 2 or 3 mtpa worth of new trains was approved for. But that is NOT enough to be a large $4B LNG train.
BTW: The Gorgan operation off the coast of Australia was multiple times as expensive to build as Cheniere’s Sabine Pass operation, but they have similar production capacities.
==
Slide 67
Cheniere claims their Project Breakeven is $7.5 – $8.5 and that projects in the rest of the world have higher breakeven prices.
==========
The trouble is the current spot market is well below what producers need in the long run to justify building LNG trains. So the existing and under-construction tains will satisfy the global market until demand grows enough to drive the price back up above breakeven.
Until the prices go up, there is nothing the Trump Admin can do to get more trains built. Only the super-majors (Shell/BP/Exxon/etc.) can afford to build a $4B train without having a guaranteed buyer.
==
Toshiba thought a few years ago that it could make a killing by signing one of those 20-year take-or-pay contracts, and then selling the LNG they were committed to in the future.
Big mistake. Maybe a $8.5B mistake:
https://www.bloomberg.com/news/articles/2017-01-19/unsold-u-s-gas-toshiba-s-next-threat-as-nuclear-unit-loss-looms
“The Japanese conglomerate said in a June filing it could face potential losses of 971.4 billion yen ($8.5 billion) at its power and infrastructure division, which the spokesman said is mostly due to its LNG contract in the U.S.”
“The ones [production trains] Cheniere built are $4B each.”
These are railroad trains you are talking about? I looked at one link on Google and it described one production train as made up of 82 “units”. So what are we talking about here, a couple of locomotives and 82 railcars?
These “trains” don’t move. Here’s a picture or one of Cheniere’s:
http://www.lngworldnews.com/wp-content/uploads/2015/06/Cheniere-Partners-arranging-Sabine-Pass-LNG-Train-5-financing.jpg
The storage tanks at the end of the picture hold about 3.5 BCF worth of liquefied natural gas (LNG).
Which end?
Front left or right rear?
Funny just a few years back during the “we don’t have much oil and natural gas left era” we were building facilities to receive imported gas and LNG from far off places like the Gorgon field off Western Australia. Funny how technology flipped that so quickly.
Yes, 180 degrees and hockey sticks to boot.
Eagle Ford formation in south Texas turns to gas closer to the coast as kerogen is first cooked to petroleum and with increasing temperature, gas. The anticline is toward the coast, deeper is hotter and more pressure.
Absolute reserves are much larger than current plays. The US has more TTR only because of investment and technology. It isn’t geologically gifted. A true meritocracy.
“Sabine LA (Cheniere) has only been in operation for about 1 year. It has a capacity of 1.4 Bdf/d.”
That was true as of Dec 31, 2016. As of Mar 31, 2017 it is up to 2.1 Bcf/d. (~14BCF/week)
By the end of this year, we’re looking at 3.5 BCF/day (or more) for the continental US.
BTW: I’m not a big Obama fan, but he is the one that deserves all the credit for LNG exports between now and 2020. It takes years to build a LNG train the traditional way. Cheniere’s 7th train (Sabine Pass #5) commenced construction in June 2015. It won’t be in production until 4 years later (2019).
Morgan Kinder is building a modular LNG train (or set of trains) on Elba Island near Savannah. It is a faster process, but still it will take 2 1/2 years from the decision point to fully operational.
Giving credit to Obama for not being as destructive as he could have been?
Damning with faint praise.
Trump’s Admin (ie. FERC) has issued one permit for 3 trains. Obama’s Admin (FERC) issued 15 permits for 25 trains. LNG is Obama’s party. Trump is just jumping on the bandwagon.
BTW: there is one big difference
Obama’s admin made the applicant show there was a likelihood they could find buyers before they issued the permits. It seems Trump’s admin won’t require that.
In my opinion, it won’t matter much. There are already numerous un-leveraged permits out there. Buyers disappeared from the long-term market in 2015 and 2016. Until they come back, no one is likely to commit to spending billions of dollars.
FERC is a somewhat independent commission. Neither Obama nor Teump played much, if any role, in the permit approval process.
Although, when Trump elevated a Republican to the top spot, the Democrat resigned, rather than accept the demotion, depriving FERC of a quorum. FERC has been paralyzed since.
15 permits in 8 years vs 1 in 3 months. Works out to 1.9/yr vs. 4/yr.
The true measure would be time from submission to approval. The recently approved permit was probably submitted last year and approved before FERC was paralyzed by the Democrat resignation.
To the extent anyone is jumping on bandwagons, its potential LNG exporters jumping on Cheniere’s bandwagon.
Aside from the financial and market benefit of exporting LNG, as well as improvements in air quality from burning natural gas over coal, there are also the geopolitical benefits:
The single biggest hindrance on Putin and his quest to rebuild the former Soviet sphere of influence – which necessarily entails conquering and enslaving the non-Russian peoples who live within that sphere – is the current low price for oil and gas, which of course is directly related to the large supply of same. Low oil prices reduce his ability to spend on his military, and also reduces his pestilential influence in other ways. That in turn improves human rights, promotes geopolitical instability, reduces war and all the bad stuff that goes with war, and reduces our and our allies’ expenditures in both fighting wars and in preventing wars.
What’s not to like about all that?
A much more effective and long term way to accomplish that is to target coal and nuclear to baseload electricity production and oil and natural gas to the transportation sector.
Reducing the regulatory constraints on nuclear, coal, and methanol is all that is required to make this happen. From an engineering perspective the processes are economical.
The problem is that in order to reduce the regulatory burdens sufficiently to do this, either the Clean Air Act would have to be amended to clearly state that CO2 was not a pollutant, or SCOTUS would have to over-turn Massachusetts vs. EPA.
CAA needs to be repealed not amended. Every thing it is supposed to do is already covered under several other EPA mandates/regulations.Adding layer upon layer of laws/regulations/mandates on top of already existing laws/regulations/mandates is the problem. It all needs stripped down to its basic components and all the repetitive crap done away with. Problem is you first have to get rid of all the repetitive layers of bureaucracy and bureaucrats who will fight tooth&nail to keep as much of the repeatedly repetitive redundant laws/regulations/mandates as possible. It all puts money in their pockets and power over others in their hands.
Repealing or seriously amending CAA would take at least 60 votes in the Senate… A great idea on paper.
I am a significant investor in oil and some NG, but more domestic gas for local use. Will probably go short those companies specific to LNG if the buildout continues. The reason is that Russia has signed long term deals with China for NG for delivery by future pipelines, which will keep a lid on wholesale LNG prices. The cost to liquify and ship is nearly the price for the gas itself, presently. Why risk an investment in that? And the price may never justify the infrastructure cost of such high capital expenditure and then a bit higher prices, coal will kick in at $5 making sure a lower return on LNG forever. Or at least my life time.
While Canada had probably missed the boat so to speak in building their LNG industry, their cost to compress is a lot lower at 12 – 13 C average temp at Prince Rupert compared to OZ, or gulf states at double the average temps as Canada/Alaska. So another reason why if Canada builds major infrastructure for LNG, then the lid is even more secure on permanent low LNG prices, and relatively higher domestic NG prices.
Canada may not get built anytime soon, because of permanent loony politics. No pun intended…
The higher domestic price will hurt local economies, so long on NG locally, and especially long oil since demand will surely outstrip supply in the next 5-10 years. But short LNG long term. If you want to preserve your wealth…follow the money.
So far this hasn’t come to fruition. Maybe we have hit the bottom, but investing in O&G in the last 4 months has been a disaster, especially if you invested in Canadian companies. WTI going to $60 (the basic floor for a lot of drillers to recoup their investments) is still in question. If it weren’t for Libya, Venezuela, Nigeria and some others shooting themselves in the foot, we’d be really swimming in oil. Be careful out there.
You are certainly right about the basket case countries you mention above.
But what a time to buy very high quality companies for a steep discount. Especially in Canada, which is highly regarded as safe haven. The sell off especially for Canada (the last 4 months) was more about a better (short term) return from the frackers in US, and a bit on currency. And the anticipated border adjustment tax, and a dozen other reasons as usual, including incompetent governance in Canada that now has the international companies selling their oil sand investments. Was certainly a good time to be short oil temporally the last 4 months, if not the last 3 years, but that was for different reasons. And especially being short for the junior oil plays, while recently acquiring the majors. It’s been like shooting fish in a barrel.
OPEC sort of learnt a lesson in selling more oil into a saturated market, in that they just got less dollars for more output, so appears they are on track to keep their current commitments. Not because they are honest, but that it doesn’t make sense to dump oil at a loss. The Saudi’s started it right after Russia took Crimea, and meddling in Ukraine. US promised Saudi’s unconditional support (and substantive arms sales) from Iran in a looming climate of war a few years back over their nuclear program, so Saudi’s increased production that aligned with new higher output from the US frackers. It maybe worked the first year in containing Russia on further expansion into Ukraine and the Baltics, but it soon acquired a life of its own after everyone had to dump oil into a low global price just to stay afloat. You have probably noticed that Russia no longer uses shutting off its oil and gas supplies as a weapon to Europe anymore. But now everyone is suffering somewhat with $50 oil. IMO, no where to go but up in the long term scheme for oil. But lots of bumps and bruises on the way for sure. LNG, not so much, but I have sure been wrong before too.
As usual timing is everything. It is good to understand geopolitics in this business, as well as read the paper and watch the news. I would (am) bet dollars to donuts that oil is a lot higher in 5 years, as compared to LNG.
@Ron Williams
Do you see any possibility of US excess natural gas being converted to transportation fuel to contain the price of oil?
No. Because, if it made economic sense, it would already be happening. GTL barely makes sense in Qatar, where the gas is free.
Natural Gas as either CNG or LNG is starting to impact the diesel market.
I think we’re approaching 1.5 million gallons a day of LNG production for domestic use (part of that maritime/offshore). None of that comes from Cheniere. They don’t have a permit for domestic use. (To busy exporting massive volumes to worry about small domestic deliveries.)
That LNG is delivered to vehicles via 132 private/public LNG fuel stations:
http://www.afdc.energy.gov/locator/stations/results?utf8=%E2%9C%93&location=&fuel=LNG&private=false&private=true&planned=false&owner=all&payment=all&radius=false&radius_miles=5&lng_vehicle_class=all
Several of those stations are private stations in O&G territory. Having fracking engines, or even just pickup trucks, burning natural gas is a big savings for E&P companies. Many 10,000-160,000 gallon/day LNG production facilities are owned by E&P companies, primarily for their own internal consumption.
Outside of O&G, UPS alone has 1,000-1,500 LNG fueled semi-trucks. FedEx is finally getting in on the act.
Thousands of other LNG fueled trucks operate out of the Long Beach port in particular.
The last couple years, the refuse industry (Waste Management, etc) have been buying over 50% of their vehicles as CNG fueled.
California in particular might be diesel free in 20 years as they implement stricter and stricter anti-pollution controls. The only way to meet the strictest emission regulations they are considering is electric vehicles, natural gas, or hydrogen fueled. For heavy duty diesel applications, CNG/LNG seems to be the best choice at this point.
Ron,
In general LNG companies aren’t speculators. As an example Cheniere pre-sold ~87% of their nominal production for 20-years for each of the trains before deciding to borrow the billions needed to build their facilities. Those are take-or-pay contracts.
By summer 2018, Cheniere should have 4 large contracts generating huge monthly fees. The total is $165M per month. That $165M all goes exclusively to SG&A, interest, amortization, dividends, and internal company growth opportunities.
By 2020, it goes to $310M/month in fixed fees. That’s ~$3.5B / year in guaranteed gross profit.
If the buyers on those contracts actually want to take delivery of the LNG they contracted for, then they get to buy it at Cheniere’s marginal cost (HH*115%). So there is no gross profit in the actual day-to-day delivery of the LNG.
Cheniere “earned” all their money years ago when they signed those 20-year contracts. Now all they have to do is get the rest of the plants running and keep them running.
What the market does as far as HH or Russia, etc. is concerned can only help Cheniere expand, it can’t stop it from being a huge success over the next 20-years.
If you don’t want to invest, that’s your decision. Me? I’m invested in Cheniere.
Greg, from the sounds of things you will do fine since as you say, Cheniere pre-sold the majority of production for 20 years. Timing is everything, and sounds like you bought in when things were a little bit rosier times for LNG. It will be interesting to see how this story works out, and I will follow the details closely.
There are still a lot of unknowns how things will pan out with LNG, so my bet is more oily than gassy. But I hope you do well.
I equate present day LNG logistics to that of building a new refinery, and why so few have been built the last 30 years especially in North America. A fairly low margin business. And a huge capital cost up front with risk on several fronts. Oil doesn’t have as much fixed risk as LNG, although some in Canada with the oil sands may argue that with a cap on future production by a socialist provincial gov’t, a provincial/national carbon tax just announced last year, as well as pipeline politics raging up like a forest fire in spring. But that will change.
I am betting on it.
We should not be exporting our fossil fuels.
We should support the rest of the world switching to renewables and we can stay on fossil fuels. This way, we can ‘charge’ the rest of the world for helping to fertilize their crops and forests and also for helping to save a bit on their heating bills.
They aren’t “our” fuels. They belong to the oil companies.
“We should support the rest of the world switching to renewables ”
So you want the rest of the world to have to cope with an intermittent, unreliable power supply, that is basically useless for anything.
That is NOT very nice of you.
Oh, well…their countries and their decision.
I think they will one by one get theirs heads out of their asses when the blackouts become a big enough problem to cripple economies and cause riots and deaths.
Renewables are just an excuse to justify conversion from coal to natural gas for electricity production. Natural gas without renewables is both more economic and generates less CO2.
Renewables cant exist without natural gas because 1) renewables are intermittent and can not be adjusted to meet demand, 2) only natural gas electricity output can be adjusted fast enough to compensate for renewable intermittency, and 3) electricity storage is not economic.
Renewables can exist without coal, natural gas and/or nuclear power. You just wouldn’t be able to count on having electricity when the wind and/or the Sun weren’t cooperating.
Renewables are a placebo, for the purpose of weaning the public off of fossil fuels, including natural gas.
The fact that the government went after coal first, doesn’t mean they won’t come after natural gas next.
“Renewables can exist without coal, natural gas and/or nuclear power. You just wouldnāt be able to count on having electricity when the wind and/or the Sun werenāt cooperating.” So, in fact, they can’t unless government funds them and forces people to use them. As is the case now.
People can choose to have unreliable sources of electricity… A lot of people are dumb enough to think that they can have 100% renewables and reliable electricity.
The government that funds renewables and coerces us to use them… was elected by us. To quote Pogo, “We have met the enemy and they is us.”
I have never voted for anyone who is anti oil, coal or nuclear, so no, I did not elect them. And yet they are screwing me at every turn and I am supposed to just sit back and take it.
Thanks for this comprehesive article, David Middleton. I think it is especially helpful to me because I am not that familiar with Liquified Natural Gas operations. I’m still trying to figure out what a production train is exactly.
Thanks for the investment advice, Ron Williams. š
A production train is huge collection of refrigeration pipes. Look at the back or bottom of a refrigerator. That’s what you get for $1000. Now scale it up 4,000x and you see what you get for $4B. Natural gas has to be very, very cold to be liquid. (-259 fahrenheit)
They keep it cold by storing in large insulated tanks and letting it slowly boil off. The boil-off can be burned or re-liquefied.
Ok, I see I had it confused with transporting LNG.
Has any railroad received permission to ship LNG by rail yet?
TA,
They’ve done some test transports of LNG by rail up in Alaska. As well as around the world. Here’s one example: ~30,000 gallons:
http://files.chartindustries.com/14722936_LNG_Railcars.pdf
You could use that for “small” deliveries.
But the tanker loads coming out of Sabine Pass are probably too big to be moved efficiently by rail. About 12 gallons per mmBTU. A typical tanker holds 3.5 million mmBTU worth, or 40 million gallons worth.
That’s over 1000 train cars per tanker. Sabine Pass has a tanker leaving every other day at present, so over 500 train cars a day.
Also, the distances are normally pretty far, but some of the tankers have only gone to the Gulf coast of Mexico.
Where it would make sense is if Houston (etc.) were to put in a LNG bunkering capability for large ships. A train to bring in LNG as marine fuel would make a lot of sense.
Thanks for the explanation, greg. That puts things in perspective.
Greg Freemyer’s comments on the “nuts & bolts” of LNG operations are even more informative.
What a cruel dilemma for liberal-green German energy consumers! The choice is either good old home produced open cast dirty lignite coal, or 100x cleaner gas fracked in Trumpamerica. I guess best just not think about it and follow their leaders because they’re always right.
Some leading economists keep telling us that oil and gas are yesterday’s energy so investors should beware of stranded assets!
These economists are drinking from the AGW bandwagon and wishfully thinking this based upon their world view. But look at the stats, and that 3/4+ of the energy use in the world is fossil fuel, and that won’t be changing anytime soon. It can’t, because there is nothing that large to replace that basic fact, unless something catastrophic happens to humankind and we use very little. Even the buildout of renewables the last 10-15 years is drop in the bucket compared to our energy consumption from oil, gas and coal.
I have few investments in renewables except those imbedded into the larger oil companies who are trying to purchase ‘social licence’ and/or also serves as a great capital loss from income from fossil based fuel income. Which can be carried forward indefinitely in most jurisdictions. If you know anything on the immediate horizon that will even begin to replace fossil fuels currently, please try to let me know so I can hire you to run my portfolio.
My questions are this. There are ‘folks’ who got wind energy rights on the east coast. Does that include directly or indirectly certain mineral rights? I also add that wind projects in the same region sit squarely on various mineral reserves.
1: how did they acquire such info and at what cost?
2: What is the background of said entities?
The wind leases do not include subsurface minerals.
The leases were awarded through competitive bidding.
The “said entities” are companies qualified to operate wind farms on the U.S. OCS.
Nuclear will replace fossil fuels but it will be a 50 year transition after nuclear regulations are reformed to account for walk away safe reactors and biological radiation damage repair mechanisms.
Current Light Water Reactors are the safest source of electricity by a wide margin. Sodium Fast Reactors and liquid fuel reactors are about 1000 times safer.
Abandoning the Linear No Threshold Hypothesis, that is based upon junk science, will allow radiation safety standards to be raised by 1000 times.
These two developments render the NRC regulatory model obsolete. The current regulatory model (mandatory evacuation) kills a lot more people than radiation. A reformed regulatory model based upon the Federal Aviation Agency would allow nuclear to flourish. Airplanes kill more people per year than nuclear has killed in its history.
Hell… “More people died at Chappaquiddick than died at Three Mile Island.”
Nuclear power is very safe and nuclear waste disposal would be a trivial problem if not for NIMBY’ism.
General Electric Electric Boat Division produces effective and efficient AND safe nuclear/electric systems on a regular basis. Mayhaps the people of the world should be getting their advice on nuclear power from them and not from idiots.
Great post as usual, David.
And US status could be even better , in terms of exports, if we get a nat gas pipeline from AK North Slope. Stay tuned for that !
“Can the US become the Saudi Arabia of natural gas?” We already are. Next stupid question, please.
No. We are not. The U.S. imports slightly more natural gas than we export.
We will be the Saudi Arabia of natural gas when we export >7.4 mmBOE/yr.
Screw export, raise domestic sales/consumption. People across the water want LNG then let them do business with the House of Saud, we have done enough of that. It is long past time to kill OPEC.
This has nothing to do with doing business with Saudi Arabia.
It is a comparison of their oil exports to our potential gas exports.
And I still say screw export, develop domestic and tell the rest of the world to pound sand, especially the House of Saud and lump Putin in with them. I see here in western PA that gas pipelines are going in all over. Good! More domestic use was the whole point of expanding gas extraction in America, so build more gas fired electric plants, more gas fired steam systems in manufacturing and commercial building heat systems, convert more fleet vehicles over to gas and screw OPEC right into the sand.
David, at what time scale are we a net importer still?
I too see the articles that it won’t be until 2018 we’re a net exporter, but on the days a tanker leaves Sabine Pass we are typically a net exporter for the day. That’s about 15 days a month so far this year, or half the days so far this year. (Cheniere’s third train just started making LNG in Jan.)
And I think I recall we were a net exporter for the overall month of Nov 2016, with just 2 trains operating.
Surely “in the shoulder season” we will be a net exporter this year. I would even expect to be a net exporter this summer. Were Jan/Feb imports so big as to push the overall 2017 year to be an importer?
I can’t help but wonder if the 2018 date is “out of date”.
It could be out of date. By net exporter, I am referring to an annual net.
Clearly, U.S. natural gas exports are a significant growth industry over the next few decades. The EIA reference case has the U.S. exporting about 7 Tcf/yr (gross) by 2030-40. That would match Russia’s current gas export volume.
Should be 7.4 mmBOE/d.
David, I found the monthly data:
https://www.eia.gov/dnav/ng/hist/n9180us1m.htm
19 BCF imported in Jan. 0 in Feb.
Cheniere exported about 50 BCF each of those months, so their exports are moving the needle. It will be interesting to watch, but I’d guess 2017 will be the first year as a net exporter.
Very cool!
Its amazing isn’t it? I remember how baffled I was to read that the US is the number one importer of beef and the number 2 exporter. Reading further I found we imported Argentinian beef and exported our hormone beef. Pretty good deal, No radioactive beef for big bucks for the mediaized US beef.
But about this Natural Gas, What’s the deal there? Is it just a tax scam?
After all shale gas does have significant problems in leaving contaminated water behind. No where in this article does it note that the WolfCamp shale in Texas is the mother of all shale deposits. AND that is the natural gas we’ll be drawing from for export. Is the import/export of natural gas anything more than a handshake deal between big corporates?
The Wolfcamp is primarily an oil play. This article is not about the merits of various shale plays.
This article is about how much natural gas U.S. producers are capable of exporting. It is not about crackhead conspiracy theories about the general merits of imports, exports and free trade.
@ David Middleton
Excellent article.
It is not crackpot conspiracy theory that US regulations are pushing LNG exports and domestic natural gas consumption for electricity production.
Both nuclear and coal are excellent choices for baseload electricity. The US has very large reserves for both stretching into centuries. Both nuclear and coal are being destroyed via regulation. This increases demand for natural gas for electricity production. All the government mandates and subsidies for renewables result in increased demand for natural gas for electricity to deal with the intermittency of renewables.
With respect to natural gas exports to Japan and Europe for electricity generation, this requires regulatory relief for the construction of LNG terminals. Where is the regulatory relief for the use of natural gas to methanol as a transportation fuel? EPA regulations prevent methanol from being used as a transportation fuel.
If regulatory policy promoted natural gas for transportation rather than electricity production, we would have low oil and gas prices, and low electricity prices and very long available reserves (centuries?).
Current regulatory policy, promoting NG for domestic electricity production and LNG exports, result in high oil and gas prices, high electricity prices, and reserves for decades.
Hard to understand except for the support of the Greens and the oil companies for policies that prop up the OPEC cartel and will bring forth a new cartel for natural gas (Russia, Iran, and Qatar) in the 30-50 year time horizon when US NG reserves are dwindling.
We had better pray for economic methane hydrates in this time frame or the West(US, Europe, Japan) will be dependent upon the Middle East/Russia for both transportation and electricity.
The comparison of Norway to the UK in terms of the long term result of offshore oil and gas policy is instructive. As the oil fields dry up, Norway has a $1 trillion sovereign wealth fund and UK is scrambling to meet its energy needs.
This was the crackhead conspiracy theory:
You are correct that regulatory malfeasance has crippled the U.S. nuclear power industry and tried to kill the coal industry… And, given the opportunity, they would try to kill the oil & gas industry.
Coal and nuclear are excellent choices for base load, as is natural gas.
Our natural gas reserves won’t be dwindling on any time horizon, much less over the next 30-50 years, unless government tries to restrict fracking and/or LNG exports.
My explanation of “proved reserves” seems to have been lost on the anti-export crowd.
Methane hydrates and other technically unrecoverable gas resources would provide mote than 1,000 years of current U.S. natural gas production. If or when someone figures out a way to economically recover those resources, it will be almost as good as controlling nuclear fusion.
David,
Excellent article. I also worked as an engineer in the oil and gas industry for ARAMCO in Saudi Arabia. I worked in planning and supply coordinating getting oil and gas to export terminals and local manufacturing. I gained an understanding oil/gas macro economics (e.g.which country is producing what types of products and how much). Most policy makers and the general public have no clue concerning the scale or how much energy we have in the US.
When I started reading the research reports from Penn State in 2013 concerning the increase in estimated reserves in Marcellus – I was blown away.
The secondary effect that’s starting in Louisiana, Pennsylvania and other states is the building of manufacturing and chemical plants using local natural gas as feedstock. Natural gas costs are one of the biggest drivers of the cost of production in the industries. Large multi-nationals from all over the world (e.g. Germany, Brazil, Thailand etc.) are building manufacturing plants. This is huge for our country.
We now have the cheapest feedstock energy, excellent robotics, and private capitol formation that will start a revolution in manufacturing here.
I just saw this nice overview picture of 3 trains in Australia:
http://www.lngworldnews.com/wp-content/uploads/2017/01/australian-lng-exports-to-rise-63-pct-in-2017-report-says-530×351.jpg
That’s the world’s most expensive LNG terminal: Gorgon – $60B
Funny thing. Cheniere originally built the Sabine Pass facility as an LNG import terminal.
Gorgon is one huge money pit into which Chevron, Exxon, and others are not pouring money but pumping it (using the same high pressure injection pumps more measured heads are using for fracking). Decision was made long ago with no-off ramp. The investment is huge but shareholders will not see a return commensurate with risk (and my not see any return at all).
When the oil company narrative involves how much they are protecting the ‘fragile’ environment of the God forsaken islands on which they build their stuff, you just know this project went south a long time ago, and nobody knows how to make it go away. Maybe this is why Tillerson is drinking the CAGW Kool-Aid.
I see a pattern over the last 50 years. Failed predictions.
We drove by the pictured LNG facility in the motorhome when it was under construction. What I remember most was the road sign that āalligator crossingā. When alligators can jump as high as deer, I will worry about hitting them.
From a distance, it looked like a nuke plant containment structures. Of course no one would build nuke plants there because of hurricanes. Nuke plants are required to be designed to withstand both hurricanes and direct hit from airplanes.
Before commenting, please be subtle. There are crazy people out there. Stupid ones too. For those with irrational fear of radiation, there is a long list of things where fear is rational. LNG is one of them.
A few years back, a LNG fueled power plant was proposed for Mare Island, a retired nuke sub shipyard near Vallejo, Ca. Picture a LNG super tanker (they are awesum, bigger than a nuke aircraft carrier) passing under the golden gate bridge and heading through bays surrounded by hills and large populations.
Being old school, I still think that making baseload electricity with natural gas should be criminal because it has many important uses such as making ammonia. We have coal and nuclear.
Nothing has changed in that regard.
Back in 1983, when I was living in a different city than Mpls/St. Paul, on one of my visits “home”, my Father asked me to visit with a friend who ran the Ohio/Minnesota Oil company. Now this seemed curious at first, but when I did spend 3 hours with this man, I found out what it was all about. At that time, his concern (consisting of about 10 people and numerous contractors, was leasing land in the Appalachian hills, over the Devonian (Marcellous? I forget) shale. They would put down 4000′ to 6000′ wells, about 14″ in diameter. Well logging all the way. They’d find the PLAY and put down a “fracking string” of explosives which were essentially, a bunch of armor piercing bullets. (About 1000 of them, about 30 to 100 feet worth..)
Then they’d fill the tube (pipe) with Sulfuric, Nitric and Hydrochloric acid. Pressurize to 5000 PSI with N2.
Drive that into the fractured region. Turn around and start “pumping”. If the well was succesful, it produced like 200,000 to 300,000 cubic feet of gas per day, and 2 to 5 barrels of crude.
I worked out the cost benefit (each operation cost about $800K at the time, and it was barely break even, over the life of the well (about 10 years). I asked my Father’s childhood friend, “Why would you invest in this?” He said it was because of TAX laws, and the “equivalent loss” for depreciation meant some people with certain income levels, essentially lowered their tax burden and “made money” even though on the surface it was a “break even” situation.
I had the cutz-pah (spelling…) to ask, (when I found out they did NO siesmic work, just leased an acre from an owner, and put the well down…it was that certain over much of the region you’d hit the oil/gas shale) “What amount could you recover if you COULD “economically” go after all the gas and oil in the shale?”
My Father’s friend said something that rings in my ears to this day (particularly considering LATERAL drilling, more complete fracking and the success of the Backken and the West Texas shale..) “Well Max, we could do that…conservative estimates are ….at current usage rates, about 100 to 150 years worth of gas and oil in that shale, but we can’t do that…economically.” I said, “What about the high estimates?” He said, “Oh, some folks think 500 to almost 1000 years worth…”
I’d recommend this map: https://www.google.com/search?q=map+of+oil+and+gas+shale+in+the+US&tbm=isch&imgil=8j9BdY0AKG4XJM%253A%253BLB56Jsl-dRrrXM%253Bhttp%25253A%25252F%25252Fwww.lib.utexas.edu%25252Fmaps%25252Fus_oil_and_gas_maps.html&source=iu&pf=m&fir=8j9BdY0AKG4XJM%253A%252CLB56Jsl-dRrrXM%252C_&usg=__BCuV6Bn3fq-UNrpvYAKVF9GIvyE%3D&biw=1920&bih=922&ved=0ahUKEwjZm5rt28rTAhVHxYMKHRxDBt0QyjcIOQ&ei=FBQFWdnBIceKjwSchpnoDQ#imgrc=8j9BdY0AKG4XJM: To get an idea of the Shale Gas/Oil potential in the USA.
WolfCamp shale in Texas the mother of all shale deposits. Agree with you, see above reply, that the gov regs are for tax deductions and write offs that have nothing to do with actual future economic concerns for the public. The corporates can write off everything just by abandoning a community and its jobs and building new 200 miles away.
Consider that the entire Middle East destruction is determined by the US future economic plans. The ‘pivot to Asia’ is a transportation scam that allows the US to use its WWII oceanic fleet to fill the designer-need of world sheriff for the trans oceanic fleet of container cargo ships from Asia to US shore. The current flap of N Korea is because we desperately need S Korea to lead the ducks to water. Should S Korea become Asian-ized and become part of the new Silk Road trans-Asia railroad, there would be no need for a world sheriff for the Pacific ocean and we would be moot.
katesisco
The ONLY “WWII oceanic ships” left in the world are the two Liberty ships now in museum status. And the four WWII battleships now also laid up as museums. NO 25-man-crew, oil-fired boiler steam ship of 5,000 tons at 11 knots can compete with today’s high-efficiency direct-drive diesels pushing a 120,000 ton merchants at 16 knots with a 15 man crew. And today’s tankers easily double that 120,000 ton cargo ship. Your claim has been out-of-date since the mid-1960’s!
I wonder how much of the demand worldwide for NG is being fed by the faux concern for CAGW, and the fact that NG is relatively low-carbon? And what will happen to that demand when the inevitable happens; people realize that it was just a big s_cam? I see coal coming back, in a big way.
Bruce, Not that much in my opinion. In the US in 2015, there is no doubt NG cost less as fuel for electricity than coal did. In the US, the crossover is around $3.50-$4.00/mmBTU. It various based on the specific plant.
At least in the US, the switch was primarily driven by the low cost per mmBTU of natural gas.
I am not per se against exports.
But I would like to see us using it here to save us all a bundle of money.
Personally, I would prefer to see the US embark on a vast infrastructure project with the goal of having natural gas pipelines servicing every single home in the country.
This would save everyone who does not currently use natural gas a huge amount of money…it is by far the cheapest and cleanest and most efficient source of energy for heating, cooking, hot water, clothes drying and standby backup electricity generation.
And talk about a jobs plan!
One arguable reason the US became the country we are today is the Rural Electrification Act.
I would like to see a similar plan for natural gas in the US.
I had this idea several years ago, and have yet to hear anyone else ever talk about it.
Another thing…no matter your view on catastrophic anthropogenic global warming, nat gas is a great thing.
For those concerned that CO2 emissions are a problem…..it is a plain fact that natural gas usage is the reason why the US is now decreasing CO2 emissions every year for nearly ten years…we are now emitting less than in any year since 1992 and the number is still falling.
China is now the number one emitter of CO2 on the planet…emitting far more per year than the US ever did.
The reason why our emissions are falling and theirs is increasing?
They are bringing a new coal plant on line every week on average, and we are converting older generation facilities to combined cycle gas turbine…which, IIRC , is the most efficient way to make electricity of any method involving fossil fuels.
BTW…the reason for all of this, the single factor that makes it all possible?
Fracking!
“The current flap of N Korea is because we desperately need S Korea to lead the ducks to water. Should S Korea become Asian-ized and become part of the new Silk Road trans-Asia railroad, there would be no need for a world sheriff for the Pacific ocean and we would be moot.”
Wow!
The current flap is the same old flap. The USSR installed puppet governments where it could after WWII. The problem with puppet governments is maybe the crazy loons cut the strings and the puppet masters loose control.
From an energy standpoint, S. Korea is an interesting story. The north got all the coal and the south got poverty. S. Korea, like Japan, turned to nuclear power to run industry.
Now S. Korea is one of the riches countries in the world and exporting nuclear power. S. Korea is building four large nukes in UAE. I suppose UAE has figured out they can sell the LNG saved those who do not want nukes.