Know Your Competition

The progress and possibilities of American LNG projects have been neatly summarized in a competitive bracket format (Article Link), (Bracket PDF Link).

There are no Western Canadian projects on the bracket, but Alaska's Gas Pipeline / LNG project is listed as a wildcard.

It's a good summary and informative in terms of the projects that are competing for LNG investment dollars.

Spoiler alert - Alaska may not be winning!

2013 Alaska Gas Heroes and Zeros

Heroes

(1)   Great Bear Petroleum.  These guys took a fresh look at Alaska’s petroleum resources, invested in their ideas and completed their objectives.  New gas and new oil from Alaskan shale deposits will fill the oil and gas pipelines in the future.  Great job – best wishes for continued success.

(2)    Everyone working at Point Thomson.  Oil and gas from Point Thomson will fill the pipeline(s).  All the hard work at Point Thomson will pay off in the future.

(3)    ExxonMobil & The State of Alaska – Nice job on the Point Thomson settlement.

(4)   Governor Parnell – Ramped up his game in 2012, meeting with North Slope Producers CEOs - Bob Dudley of BP, Jim Mulva of ConocoPhillips and Rex Tillerson of Exxon Mobil.  The Point Thomson settlement cleared the deck and in March 2012 the producers announced that they had aligned. He also hit the road and started talking to LNG customers.

(5)    Pedro van Meurs – Keep on sticking to the math and providing reality checks.

(6)   LNG Buyers – The Alaska Gas project is a nonstarter without LNG Buyers and this year we started seeing Japanese and Korean LNG Buyers enter the picture.  With a bit of luck the buyers will become equity partners and help move the project forward.

(7)    Cheniere Energy & Sasol.  Cheniere is moving forward with a lower 48 LNG export project and Sasol is moving forward with a lower 48 gas-to-liquids (GTL) project.  These types of projects will sponge up lower 48 shale gas, and boost gas prices.  Projects like these lead the way and Alaskans should take note and understand the parameters of real world natural gas success stories (here’s a hint – fiscal certainty).
8)  Combined Cycle Power Plants.  One by one high efficiency combined cycle power plants are coming on line.  These plants will replace aging coal plants over the next decade and consume lots of lower 48 natural gas, which will help build natural gas prices back up to a reasonable level.  Anything the builds lower 48 gas price support helps the Alaska gasline project.  Congrats to TVA for bring the John Sevier Combined Cycle plant online ahead of schedule and below cost.

Zeros

(1)    Matt Damon.  Shale gas hater Damon received funding for his anti-shale gas movie from the United ArabEmirates.  The public discourse about lower 48 shale gas ultimately impacts the price of gas, jobs and the future of gas exports from Alaska.  Bad shale gas law could choke Alaskan shale gas development. The American electorate is about as uninformed, uneducated and mathematically impaired as is possible.  It’s sad to see the simpletons led astray by one of our own funded by those who will profit from our poverty. (Ask me how I really feel!).

(2)   The 2012 presidential campaign.  There was no real discussion of the economic benefits of domestic energy development – a real missed opportunity.  Good policies now could help Alaska in the future. In 2008 I looked forward to 2012, now I’m almost certain that we are in the first years of the idiocracy.

(3)    I could name some other maladroit zeros closer to home, mainly for inaction, but for the time being I’m hopeful that project alignment, real customers and forward momentum will pull them along.

 Good luck in the new year, and work safely.

More Lower 48 LNG Exports

The idea of lower 48 LNG exports is becoming a reality. A few months back Cheniere start the trend. I made this prediction last November:

What's next? - I assume the Cheniere business model is a good one and similar import terminals with the right ingredients will follow suit.  See page 38 of the Cheniere presentation (LINK) for plant volumes. 

This week the Department of Energy authorized Sempra to export LNG from the Cameron Parish Site (LINK), and quote:

HOUSTON -(MarketWatch)- The U.S. Department of Energy said Friday it has authorized Cameron LNG to export liquefied natural gas, opening the door wider for U.S. natural gas companies to send their bounty overseas.
The export permit is only the third awarded in the U.S. It allows Cameron, a wholly-owned subsidiary of California-based natural gas distributor and marketer Sempra Energy, to ship up to 1.7 billion cubic feet a day of LNG from its in Cameron Parish, La., facility to countries possessing free-trade agreements with the U.S. 

Here's a list of existing North American LNG import terminals with my analysis of proximity to shale gas (including the pipeline infrastructure to move the shale gas) Note, this table does not include the 2.8 BCFD proposed Gulf Coast LNG Terminal, Brownsville Texas:

The plan to convert LNG import terminals into an export terminals make sense for terminals located near shale gas fields and adequate pipelines. By this analysis there's good potential for four more new export terminals.  Two of those potential sites are controlled in part by Alaskan North Slope producers. I say this to illustrate the business decision before the producers: Build liquefaction  units at existing lower 48 import facilities -or- build a North Slope gas treatment plant, a $20 billion pipeline to Valdez, and a liquefaction at Valdez.  Obviously the Alaska LNG option is pointless unless North Slope gas is priced at a deep discount to Henry Hub.  How deep?  To defer the cost of $20 billion gas line to Valdez North Slope gas needs to sale for $1.50/MMBTU less than Henry Hub (based on a discount cash flow over 20 years at 5%).  

Now this isn't all bad news.  In the best case scenario the four import terminal near shale gas listed above are all converted to LNG export pushing the Henry Hub price of gas up into the $5 or $6/MMBTU range.  At that point in time Alaskan gas will not need to compete with the low capital cost of import facility conversion and the deep discount will not be a factor.  In the mean time it's important to remember the North Slope producers can sell LNG from lower 48 import terminals for less cost compared to building an pipeline to Valdez. 

Prediction - expect more announcements of lower 48 LNG import facility conversion to export.

For more information on the effects of LNG export see the  EIA report (LINK), and

Brookings Institution study on exporting LNG from the United States (LINK)

Shale Gas Apocalypse* - Ending?

What would it take to end the shale gas apocalypse* ?  Maybe a ton of new laws constraining shale gas development and destroying thousands of good paying jobs, or maybe.....Monetize and export shale gas as LNG, and convert shale gas to liquid fuels.

I favor LNG exports and gas-to-liquids (GTL) for three reasons - Jobs building LNG export plants, Jobs building GTL plants and Jobs building the Alaska Gas Pipeline.

It's one thing for this lonely blog to promote the idea but the industry is beginning to take advantage of abundant, cheap shale gas.

Today we have news that LNG company Cheniere is planning a second LNG export plant  near Corpus Christi Texas (Rigzone Link) (Marketwatch Link) RigZone quote:

Cheniere Energy announced Friday that its wholly owned subsidiary, Corpus Christi Liquefaction is developing a liquefied natural gas (LNG) export terminal at one of Cheniere's existing sites that was previously permitted for a regasification terminal. The LNG export terminal site is located in San Patricio County, Texas , and it is anticipated that the terminal would be primarily supplied by reserves from the Eagle Ford Shale, located approximately sixty miles northwest of Corpus Christi . The proposed liquefaction project ("Corpus Christi Project") is being designed for up to three trains capable of producing in aggregate up to 13.5 million tonnes per annum (mtpa).

The combined export volume of the Cheniere export  projects will equal about 4 BCFD which is about 88% of the capacity of the Alaska Gas Pipeline.  What's great about the LNG export terminals and GTL plants is that they represent new demand.  The scale of these projects is large enough to move markets and increase the gas price, hopefully into a long term stable range that will promote the Alaska Gas Pipeline.

*(my term for super low natural gas prices caused by lower 48 shale gas production)

More Gulf Coast LNG Sold

Cheniere Energy Partners has signed another deal to export LNG from Sabine Pass - this time to the Indian utility company Gail, (LINK) and quote:

State-owned gas utility GAIL India today said it has signed an agreement to buy 3.5 million tonnes a year of LNG for 20 years from a US firm to meet India's growing energy needs.
"GAIL has signed a Sales and Purchase Agreement (SPA) for supply of LNG over 20 years with Sabine Pass Liquefaction, LLC, a subsidiary of Cheniere Energy Partners, LP, USA for supply of 3.5 million tonnes per annum of LNG," the company said in a press statement here.  

Supplies may start as early as 2016."Under the SPA, GAIL will pay Sabine Liquefaction as per contractual provisions on a Henry Hub (US gas benchmark) basis after transfer of custody on FOB. LNG will be loaded onto GAIL's vessels," it said.The SPA has a term of 20 years commencing upon the date of first commercial delivery, and an extension option of up to 10 years.

It's interesting to note that the price of LNG under this agreement is indexed to Henry Hub vs. WTI or Brent crude.  That indicates that the buyer believes in long term low Henry Hub prices and sought to de-link their gas price from crude.  For Cheniere, indexing to Henry hub allows them to operate the plant and collect a predictable margin regardless of variations in the crude market.

Of course this is all very interesting for Alaskans.  First - Exporting lower 48 shale gas as LNG is a good thing because it builds support and stabilizes demand for L48 gas.  Second - it shows that long term LNG deals are possible, but the terms of the agreements have to be smart and fair to both parties. Third - I'm interested to see announcements of LNG export deals vs. announcements of new combined cycle power plants.  The export market may beat domestic power producers to the punch.

Gulf Of Mexico LNG - Pre-Sold

Cheniere is gearing up to convert its Sabine Pass LNG plant into an export terminal, converting cheap lower 48 gas into LNG.  Here's news (LINK) of Cheniere pre-selling 3.5MTPA of LNG to Gas Natural Aprovisionamientos, a subsidiary of Gas Natural Fenosa.  


The contract runs for 20 years with an option of an additional 10 years.This agreement follows a simlar agreement with BG (LINK) inked in October.


I mention the Cheniere because it has all the ingredients that the  various Alaskan gas projects are missing. 1) Cheap gas at tidewater, 2) some pre-built facilities, and now 3) Customers.


What's next? - I assume the Cheniere business model is a good one and similar import terminals with the right ingredients will follow suit.  See page 38 of the Cheniere presentation (LINK) for plant volumes.  Lake Charles and Golden Pass have high volumes and plenty to gain by adding export capabilities.

As Gulf of Mexico LNG exporters come on line the price of gas will climb - maybe into that $6.00/MMBTU sweet spot that will promote development of Alaska's stranded gas resources.

Best use of Shale Gas - Export it

Cheniere project moving forward to export lower 48 shale gas (LINK).

The cost: $5 Billion for two trains producing a total of 9 million tons per year.(LINK2)

You can use the unit rate to estimate the cost of an Alaskan LNG export plant.  The Cheniere volume is roughly 25% of the proposed Alaska gas line volume. Add "Alaska" factors and you find that $25 billion is need to build the plant that could export the full 4.5 BCFD of Alaska gas.  That's on top of the pipeline cost.

Japan Wants USA LNG

I wonder if LNG hawk Bill Walker is on a plane to sell his idea of Valdez LNG to the Japanese?  From Bloomberg (LINK):

Japan’s senior vice minister of trade and industry, Seishu Makino, asked U.S. Energy Secretary Steven Chu at a meeting yesterday in San Francisco to increase LNG exports, Akinobu Yoshikawa, deputy manager for the Petroleum and Natural Gas Division, told reporters today in Tokyo.

“I believe we gained the U.S.’s understanding to some extent,” said Yoshikawa. “We can’t buy LNG from the U.S. unless the Department of Energy approves LNG plant owners to export. There is one plant that recently won the approval and there are two others in progress.

Japan is a motivated buyer, a long term customer, they can make X120 pipe - where's the photos of the happy Alaskan trade delegation to Japan? Come on guys - time to get your head in the game.

The only good news in the story is that Gulf Coast LNG exports to Japan will sponge up cheap shale gas and improve to overall prospects for any North American gas project.

Larry Persily - "Don't Read the BLOGS!"

LOL Larry! At the 14:45 minute mark of "The Alaska Report September 2011" Federal Coordinator Larry Persily advises Senator Mark Begich "Don't read the blogs"

Come on Larry - I try to keep it factual and on topic.  Aside from that comment I enjoyed the interview.  Thanks Senator Begich, and thanks Larry.

Sasol GTL

Sasol has plans to pursue a Gas to Liquids (GTL) project on the Gulf Coast. (LINK).  Chesapeake has been saying GTL will sponge up the shale gas glut (LINK- see page 10).  Looks like they may be right.

Quote from the DownStream Today article:

Sasol Ltd. (SOL.JO, SSL), a chemical company long known for squeezing motor fuel out of coal, is now turning its sights on the glut of natural gas in the U.S.South Africa-based Sasol on Tuesday announced plans to build a plant, at a cost of as much as $10 billion, that would convert natural gas into diesel.

Sasol's board last week approved an 18-month feasibility study for the project, which would be constructed on land adjacent to Sasol's existing chemical facility in Louisiana.If given the final go-ahead, the plant would be the first in the U.S. to use so-called gas-to-liquids technology. Once seen as far-fetched and futuristic, the technology has gained traction in recent years as the discovery of gas supplies has outpaced that of oil.

 Anything that increases demand for lower 48 gas helps Alaska in the long run.  18 months seems like a long time for a study, but I still look forward to approval for projects like this.

Boone Pickens on CNBC

I follow T. Boone Pickens because his plan will boost gas sales, increase demand and by extension boost gas prices back to a range that will support development of the Alaska Gas Pipeline.

Today Pickens ranted a bit on CNBC (LINK) today. Aside from his remarks about OPEC funding the Taliban and disparaging remarks about the Koch brothers he also attacked the idea of exporting LNG from the U.S., specifically from Cheniere.

By his logic we are importing dirty oil and exporting clean LNG.

I take issue with this - First we import oil, refine it and use it, but we also export refined products (about 450,000 bbls/day) - good lets build our export economy. Secondly we import a lot of high sulfur "dirty crudes". Many of our refineries are designed and tuned to run on these less expensive feedstocks - another good thing let's use technology to exploit the full range of available feeds. Third - I'm all for exporting U.S.A LNG - it will sponge up excess lower 48 shale gas, boost our economy and help build price support for the Alaska Pipeline.

Speaking of sponging up cheap shale gas - I think the free market is catching on to the idea of converting to cheap gas. Follow this link to see all the CNG fueling stations. It's still early days, but CNG may be the breakout alternative fuel.