Growing Asian demand is expected to offer the largest market potential for LNG producers over the next couple of decades, and it seems as though the US may be positioning itself to take full advantage of that demand growth, to the chagrin of other global exporters.
Ever since the shale revolution which has flooded the US with an overabundance of cheap natural gas, LNG projects in Australia, East Africa, Canada, and Russia have been unable to rely on the US market, moving focus almost entirely to Asia.
Traditionally these exporters have held an advantage over the US, whose Gulf Coast based refineries make tanker trips to Asia much longer and therefore less competitive, but a proposed widening of the Panama Canal will allow the passage of US LNG tankers, cutting the trip length from 16,000 miles to just 9,000 miles, and allowing US exporters to compete in the Asian market.
Currently only 21 of the 320 strong US LNG tanker fleet could move through the Panama Canal, but none of them take the risk, yet once the widening project is complete, by the end of 2015, over 80% of the tankers will be able to use the waterway.
By widening the Panama Canal, the US can compete in terms of trip length and costs, but then it has an advantage over other exporters due to the existing Gulf Coast infrastructure and expertise from when it was the world’s largest LNG importer. New facilities on the undeveloped coasts of Mozambique and Tanzania, the harsh Russian Arctic, and the remote wilderness of Australia and Canada, cannot compete on the same level.
Asish Mohanty, a senior analyst on North American LNG at Wood Mackenzie, told Reuters that “the cost stacks to Asia from the five major supply options end up in a very similar range… but the U.S. brings a unique proposition, and so might be getting a lion’s share of that extra demand. We expect around 45 to 50 million tonnes a year of U.S. exports – all starting up before 2020 – with the rest to be shared amongst the others.”
This means that the US should win about a third of the 150 million tonnes a year of extra LNG demand that is expected to appear from the Asian market.
This piece is cross-posted from OilPrice.com with permission.