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Henry Hub pricing gives US gas 'huge' advantage in Japan market: Freeport LNG CEO

Highlights

The CEO of Freeport LNG, one of three US Gulf Coast export projects looking to tap into Asian demand, said contracts linked to the Henry Hub price benchmark will revolutionize the Japanese market, even if oil-linked contracts continue to dominate the global LNG market.

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"Our customers -- Osaka Gas, Chubu Electric and now Toshiba -- all are focused on getting US-based natural gas here on a Henry Hub-linked basis, because that's the cheapest gas they can get in the world," CEO Michael Smith said on the sidelines of the 2nd LNG Producer-Consumer Conference in Tokyo Tuesday.

"Post-Fukushima, their increasing LNG volumes on top of the very high oil-linked cost is severely hurting their economy. They must drive down the price, and we're happy to be the ones to facilitate that."


Smith said Freeport LNG would be able to deliver supplies to Asia for $7/MMBtu on top of the US price, which he said would still be below the $16/MMBtu that Japan currently pays.

"The preponderance of the market is going to be oil-linked," he added. "That's why those companies that can get Henry Hub-linked supply have a great advantage over being stuck with oil-linked LNG.

"To the extent that enough North American gas comes to market and starts competing and threatening some of the Qatari markets, then maybe they'll still stay oil linked but the percentage of the slope that they use will soften a little. But it will still be oil-linked."

Qatari oil minister Mohammad Bin Saleh al-Sada told the conference earlier Tuesday that US gas benchmarks were unlikely to upset global LNG pricing trends.

Smith described Freeport LNG proposed for Quintana Island, Texas, as the farthest along of any US LNG export applications after Cheniere's Sabine Pass project in Louisiana. He said Freeport LNG would start construction next spring as soon as it gets final approval from the US Federal Energy Regulatory Commission for the first two liquefaction trains.

"We have the financing pretty much in the final stages of being lined up for trains one and two, which is the trains for Osaka Gas, Chubu Electric and BP Energy," he said. "We plan on taking a nine-month break between that closing and the closing for train three with SK Energy and Toshiba, which we hope will be late 2014."

Looking at his competition outside the Gulf Coast, Smith said neither of the two Oregon projects on the US West Coast would get off the ground because of fierce local opposition, and he predicted Canadian projects would continue to face delays.

"The ones in Canada, God knows how long it's going take them to finally get it together," he said. "They used to be years ahead of me, now they're years behind me."

Smith said Freeport LNG would start construction the day after FERC approves its permit.

"FERC is moving very slow on every single LNG terminal, and that's the gating issue holding Freeport back," he said. "We have the customers, we have the money, we have the engineering done, we're ready to go."

--Staff, newsdesk@platts.com

--Edited by Geetha Narayanasamy, geetha.narayanasamy@platts.com