Receiving U.S. approval to export U.S. natural gas as LNG is only one, possibly very small, step toward commercializing excess U.S. supply, according to Brian Specter, managing director, structured products, for BP Plc.
“Today, clearly natural gas has a much dearer home in Asia and in Europe where native energy prices are much, much higher,” Specter told Oil Council meeting attendees in New York recently.
“So I think gas will continue to be looked at to be pushed offshore. If the capital is put in and the ability to export it is there and the market remains there, then absolutely you can get more gas out of the shales, but I don’t think you can look at it just in terms of all of a sudden you can send it offshore so now you have a market there.”
Specter says talk of environmental regulation in the U.S. via a carbon tax, for example, bodes well for U.S. natural gas supply, which will create more demand domestically and strengthen prices. Meanwhile, carbon regimes in Europe will affect demand there.
A great deal is in flux in the midst of a very long-term proposition, such as building gasification facilities and securing contracts for delivery.
“You have to really put a different hat on when you look at the way LNG is priced because most of the rest of the world doesn’t look at gas supply the way we do. For them that gas supply is almost like coal. It’s a long-term commitment. There’s a large capital expenditure (on import facilities) in the front end of it. They’re willing to invest in it for the long term.”
In the U.S., natural gas pricing is possibly one of the most liquid commodity markets in the world, and derisking a long-term investment is easier. “It’s very liquid and it makes it easy for producers to do their investing because they can come to folks like BP and lay off this risk (through hedges). The LNG market is just fundamentally very different.”
Also, Qatar and other LNG producers are difficult to compete with; for these, the LNG they export has no domestic market. “It’s a commodity they’re pulling out of the ground and, in the case of some gas producers, it’s wrong to say it’s a byproduct, but let’s just say the condensate that is being yielded off some of these gas fields that are doing LNG is much more valuable than the LNG that they’re putting out today, so the economics of oil play a lot into it as well.”
–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, OilandGasInvestor.com Today, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at ndarbonne@hartenergy.com.
Recommended Reading
New US Solar Tariffs on Southeast Asia to Raise Prices, Cut Profit Margins
2024-12-02 - A new round of U.S. solar panel import tariffs on Southeast Asian producers is expected to raise consumer prices and cut into producer profit margins.
BLM Sets Aside Land for Solar Project Review in Utah
2024-12-02 - The project proposed for development by Hanwha Energy Corp.’s 174 Power Global could generate an estimated 600 megawatts of solar electricity.
US Supreme Court Should Avoid Climate Change Cases, Biden Administration Says
2024-12-11 - The Biden administration is urging the U.S. Supreme Court to reject efforts by oil companies to prevent lawsuits accusing the fossil fuel producers of deceiving the public about climate change.
Burgum: Yes to US Power Supply, Reliability; No on Sage Grouse
2025-01-16 - Interior Secretary nominee Doug Burgum said the sage grouse is neither endangered nor threatened; he'll hold federal leases as scheduled; and worries the U.S. is short of electric power and at risk of losing the “AI arms race” to China and other adversaries.
US to Withdraw from Paris Climate Agreement, White House Says
2025-01-20 - The announcement, in a document from the White House, reflects President Trump’s skepticism about global warming, which he has called a hoax.