Speakers split on prospects for natural gas exports

Water-borne facilities to liquefy natural gas for export could let small U.S. producers profit from overseas sales of lower-cost domestic gas, but it may not be long before that price advantage disappears, said speakers offering contrasting views at the Offshore Technology Conference Wednesday.

Panelists at separate sessions discussed the boom in U.S. gas production, and the accompanying rush to build equipment for chilling it to a liquid for shipment on tankers.

One session focused on an emerging move toward floating liquefied natural gas facilities that proponents say could provide more flexibility at lower costs.

"There's a confluence of situations coming together to really allow FLNG to make its mark in the LNG industry," said Kathleen Eisbrenner, a former executive vice president of Royal Dutch Shell and current CEO of NextDecade, which works to monetize smaller natural gas fields by using floating liquefaction facilities.

She argued that floating LNG units represent an opportunity since they would carry lower price tags than land-based LNG terminals, providing a "smaller and more bite-size" approach.

Around 40 such facilities could be online worldwide by 2020, Eisbrenner projected. Four have been announced so far. She cited research from consultants Douglas Westwood indicating more than $65 billion in capital could flow to floating LNG facilities through 2020.

A speaker on a separate panel warned, however, that around that same time, the rise in exports to meet Asian demand will cause prices there to start equalizing with the natural gas that China and other nations import from North America.

The fading price gap could dampen enthusiasm among Asian customers including Chinese utilities that might be able to tap domestic supplies for power generation.

That could discourage American LNG providers from building a number of projects lined up for approval at the Department of Energy, said Laurent Maurel, vice president of LNG for Total, during in a session on global natural gas markets.

The multibillion-dollar export terminals are so expensive and complex that companies won't build them without locked-in, long-term gas sales contracts, and prospects for those are limited.

"We are convinced there will be much fewer projects built than people expect," Maurel said. "One large part of building projects is making sure you have customers. There are no new LNG projects without customers signing purchase agreements. It's never the easy part of any project."

Eisbrenner was more optimistic, at least as to water-borne liquefaction, a sector still in its infancy.

She projected that for the next 20 years, U.S. natural gas bound for Asia will cost about $12 per million British thermal units, accounting for liquefaction and shipping costs - but will sell there for $16 per million Btu.

"To me, this is an opportunity," she said.

Floating LNG facilities enjoy cost savings because of their modular design, she said, and because they can be built at shipyards with established workforces and procedures instead of at land-based sites with unique physical conditions and workforce characteristics.

The technology also could allow natural gas processing closer to offshore fields, eliminating the need for pipelines and pumps to get it to shore.

But it also has hurdles: FLNG plants have to be built to accommodate for wave motion.

Still, she argued that the technology is proven - comparing floating liquefaction plants to floating production storage and off- loading units, or FPSOs, which already are in use to process and store hydrocarbons produced from nearby platforms before they're placed onto tankers or transferred via pipelines.

Maurel, the Total executive, told his audience that the global market for LNG can absorb about 240 million tons of exported fuel a year, and that projects already proposed in the United States would have the capacity to more than fill that demand.

Total projects that Asia's current $16 per million Btu gas price will shrink to $13 by 2020 as U.S. LNG exports hit the market.

Meanwhile, the low prices U.S. LNG providers have agreed to in their contracts - less than $12 per million British thermal unit in 2016, the first year U.S. exports are expected to reach Asia - will rise to more than $12.50 in four years.

He also predicted a rise in shipping costs.

"Transporting gas is much more expensive than transporting oil or orange juice," he said. "The relative cost of transporting gas versus producing gas is high."