Asia’s energy-hungry economies are turning to a new, politically stable and potentially cheaper source of gas: the United States. While the domestic debate continues over U.S. energy exports, major gas importers such as Japan, South Korea and China are scrambling to invest in the new energy superpower’s gas projects.
Should major exporters of liquefied natural gas (LNG) to Asia, such as Australia, be concerned about the emerging competitive threat?
According to analysts, the short answer is no. However, this has not stopped a number of deals in recent times involving potential U.S. gas exports.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
Japanese LNG imports hit a record high of 87 million tons in 2012 after its nuclear shutdown, and companies from the world’s biggest gas importer have seized upon the opportunity to diversify supply.
On February 6th, Tokyo Electric Power Co. (TEPCO) announced plans to buy 800,000 tons of gas a year from the U.S. Cameron Project in Louisiana starting from 2017, over a 20-year period.
Importantly, the utility announced that the Henry Hub price, or the spot price at Henry Hub in Louisiana, would be applied to the price index “for the first time in a TEPCO long-term LNG contract,” rather than the usual formula linked to the oil price.
Across the border, the Canadian National Energy Board recently approved a plan by Royal Dutch Shell and its Asian partners Korea Gas, Mitsubishi Corp. and PetroChina to export natural gas from British Columbia to Asia.
Shell has also unveiled plans to export U.S. gas from a gas terminal in Georgia, while other majors including Chevron and Britain’s BG are also reportedly positioning themselves to access North American shale gas for potential export.
Cheaper gas prices are tempting for Asian buyers, with international crude prices having tripled over the past decade while U.S. Henry Hub prices fell by a third.
The prospect of cheaper U.S. gas saturating Asian energy markets might scare proponents of new LNG projects, including Australia’s U.S. $180 billion new export industry.
However, analysts expect a far lesser impact on Asian energy prices. Australian energy companies Santos and Woodside Petroleum expect U.S. gas exports to reach 40 to 50 million tons per annum (mtpa) by the end of the decade, less than half the 130 million tons capacity proposed across North America and insufficient to put downward pressure on prices.
In its submission to the U.S. Department of Energy’s LNG export study, Shell said the cost differential of U.S. LNG into Tokyo Bay was “not as great as it may first appear.”
For Australian LNG exporters, the bulk of current sales contracts are long term in nature and linked to crude oil prices, with their Asian buyers typically also equity partners in their projects. Australian LNG exports are forecast to reach 130 mtpa by 2030 in a total market of 450 mtpa, while the U.S. Energy Information Administration has forecast 112 mtpa of U.S. exports by 2040.
Deloitte analysts expect LNG prices to fall from U.S. $15 per million metric British thermal unit (MMBTU) to about U.S. $10 by 2015 in Japan, yet U.S. LNG exports would only cut prices by up to 70 cents.
Instead of Asia, U.S. exporters are expected to target Europe first due to infrastructure reasons, with high-cost Russian exports seen particularly vulnerable.
Instead of competing, the U.S. and Australia could “divide up the world” in energy markets, according to analyst Robert Kaplan. Unfortunately for Asia, the touted benefits of the U.S. shale gas revolution might prove to be hot air.