Prices, not policy, will ultimately shape US gas exports
Prices, not policy, will ultimately shape US gas exports
With a dozen projects proposed to liquefy and export a bounty of cheap US natural gas, industry experts say big obstacles remain to make them all economical, despite the clear message from the government-funded study: the more gas shipped overseas, the better for the domestic economy.
The long-awaited report, commissioned by the Department of Energy and conducted by NERA Economic Consulting, lifted some uncertainty about the overall fiscal impact of gas exports.
However, the huge cost of building intricately designed plants that cool natural gas to a liquid for shipping, the volatility of US gas prices and the uncertainty about global demand remain key hurdles for potential exporters, regardless of the political landscape.
“It was a positive report, but it doesn’t radically change my view on exports,” said Katherine Spector, head of commodities strategy at CIBC World Markets. “A lot of it will come down to economics.”
The debate about exporting gas abroad has raged since new drilling technologies revolutionized US gas production, pitting gas producers who would capture higher prices abroad against consumers who would benefit from lower fuel costs at home. Output has risen to record highs due to the development of vast shale deposits. Prices, meanwhile, fell to 10-year lows in April.
With excess gas at home, and prices far below global levels, a dozen projects have begun to seek approval to export US gas to high-paying markets in Europe and Asia. One project — Cheniere Energy’s Sabine Pass plant in Louisiana — has already signed deals to supply companies in India, Great Britain and South Korea.
But the government stalled the approval of further projects this year until it had received the report on the affect exports would have on the US economy.
That report on Wednesday concluded that exports would overall be beneficial, despite leaving consumers to pay more for gas at home. It got a tepid reception from US manufacturers that benefit from lower cost gas and would see profits take a hit if lower domestic supplies drive up prices.
Despite the report’s overall positive outlook for exports, it did not change the bigger picture for US exports for market experts.
“The prospects for projects going ahead are less about the regulatory approval process and more about the market and the ability of global importers to absorb additional supply,” said Gordon Pickering, a director with Navigant Energy.
The industry has been stung by swings in the gas market in the past. A decade ago, companies were scrambling to build terminals to import natural gas into the US as domestic production fell.
Since the shale gas boom, those projects — which cost billions of dollars — are mostly gathering dust.
Gas exports in the form of liquefied natural gas (LNG) is reliant firstly on US gas prices remaining far below global prices for some time, which lends added risk to billion-dollar LNG projects.
Currently, with US gas prices below $ 4 per million British thermal units (mmBtu) and Asian spot prices at $ 15, it is profitable to sell gas there, even after the cost of liquefying the gas and shipping it across the ocean. But US gas prices are known for their historic volatility, keeping some Asian buyers wary.
“The support for the US is very conditional. People are very excited by this, but it will be interesting to see what they think if prices hit $ 5.50,” said Nikos Tsafos, analyst at PFC Energy in Washington. PFC expects to see two or three US LNG projects up and running by 2020.
US prices have doubled since hitting April’s low around $ 1.90 per mmBtu. On Thursday, gas futures traded in New York settled at $ 3.67.
Moreover, US LNG producers will be fighting for a share of a competitive global LNG market dominated by a few large producers, and the appetite for new supply will influence how many US projects are eventually built.
“Qatar, Russia and Australia have a leadership position in those markets and are going to fight very hard to retain what they have,” Navigant’s Pickering said. “They are at least five years ahead of these US LNG projects.”
Mnuchin expresses optimism trade standoffs can be resolved
- “We are cautiously optimistic,” US treasury secretary says of trade talks with Chinese counterparts
- China's commerce ministry welcomes prospect of US visit to discuss trade issues
The International Monetary Fund and the World Bank repeatedly warned at their meetings this week that intensifying trade tensions could jeopardize a healthy global economic expansion.
But US Treasury Secretary Steven Mnuchin expressed cautious optimism Saturday that countries could settle their differences without a trade war.
Mnuchin met during the past three days with financial officials from China, Japan and Europe over a series of punitive tariffs unveiled by the Trump administration against China and other trading partners.
In a session with reporters, Mnuchin refused to say how close the United States was to resolving the various trade disputes, but he did say progress had been made.
The United States and China are on the brink of what would be the biggest trade dispute since World War II. Each has proposed imposing tariffs of $50 billion on each other’s products; President Donald Trump is looking to impose tariffs up to $100 billion more on Chinese goods.
In a speech earlier this month, Chinese President Xi Jinping vowed to open China’s market wider to foreign companies, raising hopes the dispute with Washington could be resolved. Mnuchin said he discussed Xi’s proposals with Chinese officials. “We are cautiously optimistic,” Mnuchin told reporters, saying that he may soon travel to Beijing for further talks.
The Commerce Ministry in Beijing said Sunday that China welcomes a visit from the US to Beijing to discuss trade issues and confirms it has “received information” regarding Washington’s interest in such a trip.
Trade tensions dominated the three days of talks among top finance officials attending meetings of the Group of 20 major economies, the 189-nation International Monetary Fund and its sister lending agency, the World Bank.
The officials roundly criticized Trump’s get-tough approach to trade, a reversal of seven decades of US support for increasing freedom in global commerce. In his speech to the IMF’s policy committee Saturday, Yi Gang, the head of China’s central bank, said that global growth could be hurt by “an escalation of trade frictions caused by unilateral actions,” an obvious reference to America’s threatened tariffs against China.
Mnuchin insisted that the United States was not trying to provoke a global trade war but seeking to protect American jobs from unfair competition. “The president has been very clear on what our objectives are,” Mnuchin said. “We are looking for reciprocal treatment. This is not about protectionism.”
There were signs of conciliation. The US dropped its objection to the first increase in the World Bank’s capital resources since 2010, clearing the way for the bank’s board to OK a $13 billion increase in its capacity to make loans to poor countries. The move was tied to a package of reforms the US had sought.
Both the World Bank and IMF held meetings of their policy committees on Saturday. In a closing communique, the IMF expressed concern that the rising trade tensions could dim what at the moment are bright prospects for the global economy, which is expected to grow this year at the fastest pace since 2011.
“Trade tensions are not to the benefit of anyone,” said Lesetja Kganyago, who leads the policymaking committee and is governor of the South African Reserve Bank. “If there is a trade conflict, there could never be winners. We could all only be losers.”
On Friday, Mnuchin had called on the IMF to do more to police countries running large trade surpluses, a role that has traditionally been left to the Geneva-based World Trade Organization. The final IMF communique did state: “We will work together to reduce excessive global imbalances in a way that supports global growth.” The communique did not spell out how this would be accomplished.