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US exports of LNG to impact global prices: speakers

Houston — US LNG exports will have an increasingly large impact on worldwide prices and Europe will help balance the market between gas suppliers and demand centers, speakers at Benposium 2015 said in Houston Wednesday.

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Andrew Walker, BG Group vice president of Global LNG, said he expected the global LNG market to continue to expand rapidly over the next several years as export projects in the US and other gas-producing countries such as Australia begin to come on line.

"It's driving globalization in terms of geography, and also globalization in terms of market structure," Walker said.

While the total global LNG export capacity is about 240 million mt per year, "continued growth in demand will mean the industry will need another 100 million tons of capacity in place by 2025," he said.

Currently there is about 135 million mt/year of capacity under construction.

"Most of it is in Australia but an increasing amount is in the US," Walker said.

Asia, which historically has been the largest market for LNG, "is going to continue to be a big deal" in terms of demand in coming years, Walker said. However, the growth in the Asian market for LNG will shift from the traditional demand centers in the developed industrial nations of Japan, Korea and Taiwan to the emerging markets in India, China and the nations of the Southeast Asia region.

"China, already a big market for LNG, is growing quite rapidly and will emerge as the second biggest market after Japan by 2020," Walker said.

Europe will act as a "balancing market" for global LNG volumes, he said. As worldwide supplies of LNG increase dramatically over the next half decade, European imports of the fuel also are expected to increase from current levels.

"Europe imported about 65 million tons in 2010-11. With imports into Asia increasing, we're down to half the level of imports of 2011," Walker said. "As the capacity under construction starts to come on the world will move back into balance and Europe will get some of its volumes back."

The decline in European LNG imports seen in recent years has "reached the valley" and the downward demand trend has begun to reverse, he said.

"We're not seeing a flood of volumes into Europe just yet, but we're seeing volumes getting back to the level seen in 2010 by about 2020," he said.

Javier Diaz, manager of energy analysis for Platts unit Bentek Energy, predicted that about 9.1 Bcf/d of LNG export capacity would be built along the US Gulf Coast, by 2020.

"An additional 1 Bcf/d will come from the East Coast, from Cove Point," Diaz said on the sidelines of the conference.

Conversely, Diaz said he does not believe that any of the projects being proposed to export LNG from the West Coast of British Columbia would get built, at least not during the first wave of construction for new North American LNG projects.

Of the 22 Bcf/d of export capacity proposed to be built in British Columbia, not a single project has reached the final investment decision phase, Diaz said.

"I don't think there's room in the market for them to get built before the second half of next decade," he said.

In addition, unlike the US Gulf Coast export projects, which are pegging their LNG sales contracts to Henry Hub gas prices, Canadian LNG developers "have not been able to react to the requests from Asian buyers who would like to move from the oil-linked prices to the gas-linked prices," Diaz said.

Exporting gas from BC is expected to be more expensive in comparison to the proposed US export projects, because unlike those US projects, most of which are being built around existing LNG import terminals, the proposed Canadian LNG terminals are all greenfield projects, he said.

The developers of the Canadian projects, which were first proposed to investors when oil prices were much higher than they are currently, are now struggling to ensure the financial viability of their projects, Diaz said.

"It's been a slow process," he said.

He cited the lengthy negotiations the BC LNG developers have been engaged in with the First Nations groups in order to secure pipeline right-of-way and access to the projects sites "and how long it took the British Columbian government to come out with a tax structure for these projects that would be perceived as competitive for them."

--Jim Magill,
--Edited by Richard Rubin,