How exporting LNG could bring serious wealth to the U.S.
Thursday, April 5, 2012
from Oil & Gas Investments Bulletin
Where will the wealth created by the fast growing Liquid Natural Gas (LNG) market be concentrated in the coming years?
In a word-Australia. It's the #4 exporter of LNG in the world already, and seven new plants are in various stages of planning and development, which would require $200 billion in capital investment-and lots of jobs.
By comparison, America, which produces massive amounts of natural gas, sends a shockingly small amount of the resource abroad.
Both are close to markets - Australia is closer to Asia, which imports vast quantities of LNG, but the U.S. is also relatively close to these markets and closer to Europe, which holds some major LNG consumers, like Spain and France. Both also have robust natural gas production.
And yet Australia is light years ahead of America in sending LNG overseas. How far? about 800 billion cubic feet (bcf) per year.
Now before we explore that gap further, here's a short-version background on LNG…
LNG is created by cooling natural gas to minus 256 degrees Fahrenheit, which transforms the gas into a liquid. This liquid has about 1/600th the volume of natural gas, making its transport over long distances much simpler -and much more economic.
While turning a gas into a liquid may seem to be the stuff of science fiction, it has its roots in the 19th century when Carl Von Linde, an engineer in Munich, built the first practical compressor refrigeration machine. The first LNG plant was built roughly a century ago in West Virginia.
Is This 'New' Bakken Play Ready To Boom?
It's not the Bakken most investors have come to know.
But I expect that all to change, especially now that one small company operating here has just hit TWICE on a HUGE new play-validating thousands of acres.
That's why company insiders have been loading up on shares… AND why brokerage firms have price targets 50% to 100% higher than today's share price.
As an OGIB reader, you can get the full update on this high-potential growth play - here in my new findings. Go here for free access.
Of course, large-scale users of natural gas prefer to deal with the regular kind-not liquid and frozen. Since gas is easier to move and doesn't need to be refrigerated, companies had to then develop ways to reverse the process. So you have to liquefy the gas to move it, and then 're-gasify' the natural gas to use it. That's a lot of work and means large infrastructure investments are required.
The gas is converted to liquid at liquefaction plants (LNG export terminals.) It is then transported in special ships that use auto-refrigeration. These LNG ocean tankers actually use a small amount of the LNG - 3%-4% during an average voyage-to power the ships. These tankers can carry around 135,000 cubic meters of liquid natural gas, which works out to about 3 billion cubic feet of warm natural gas.
To give you an idea of how much gas that is, 23 ships a day could feed ALL the US demand for natural gas. There are now roughly 375 ships in service worldwide.
The ships then go to an LNG import, or regasification, terminal where the LNG is converted back to a gaseous state and then either stored in tanks or sent through pipelines.
The Asian market is a major destination for LNG exporters. Japan is by far the world's largest importer of LNG, bringing in nearly 71 million tons (8.52 bcf/d)-or almost 31 percent of all global LNG imports, according to Unit Economics.
South Korea is #2 at 34.5 million tons (4.14 bcf/d), or roughly 15 percent of global imports. Taiwan (11.3 million tons/1.36 bcf/d) and China (9.7 million tons/1.16 bcf/d) also account for a significant portion of LNG imports.
Asia isn't the only major LNG import market, though. Europe brings in large amounts as well. Spain is the third largest importer of LNG with 27.3 million tons (3.28 bcf/d) coming in during 2010. The United Kingdom and France are also major importers, bringing in 13.4 million tons (1.60 bcf/d) and 10.2 million tons (1.22 bcf/d) in 2010, respectively.
According to the U.S. Energy Information Administration (EIA), the U.K. received 55 percent of its LNG exports from Qatar in 2009. That same year significant quantities of the hydrocarbon entered the U.K. from Trindad and Tobago (a surprisingly robust LNG exporter with 15.4 million tons (1.85 bcf/d) sent abroad in 2010), Algeria, Egypt and Australia.
Now that we've covered the basics of LNG, we can dive into the LNG industry in Australia to see what the U.S. might learn from the Land Down Under.
Australia only trails Qatar, Indonesia and Malaysia in LNG exports. In 2010, Australia sent 872 billion cubic feet (about 19 million tons) abroad, which was a substantial improvement over the 714 BCF exported in 2009, says the EIA.
That's just over 8% of the world's LNG exports. By comparison, Qatar does 25% of all LNG exports. Unit Economics states that Australia could contend with the Middle Eastern country for top spot as early as 2016.
Not surprisingly, most of Australia's LNG exports go to the Top 4 importing countries-all in the Far East. Japan gets about 70% of Australia's LNG exports, China gets 21%, South Korea 5% and Taiwan 4%.
There are only two LNG liquefaction plants in Australia right now, but seven additional export facilities are under construction, and four more are planned. Unit Economics reports that if all of these facilities come on line and produce their projected capacities, Australia will send a staggering 95.7 million tons (11.5 bcf/d) of natural gas abroad per year, versus the 19 million tons (2.28 bcf/d) it is exporting now-a five-fold increase!
This article is for information and discussion purposes only and does not form a recommendation
to invest or otherwise. The value of an investment may fall. The investments referred to in this
article may not be suitable for all investors, and if in doubt, an investor should seek advice from
a qualified investment adviser. More