US LNG poised to find LatAm markets

LNG vessel16 January 2014 – US liquefied natural gas exporters may find significant opportunity in Latin America amid developing markets hungry for power, executives in the sector said in Houston on Wednesday.

But the extent of this growth will be highly dependent on whether pricing can be competitive with other power sources such as coal, fuel oil or global LNG from elsewhere, panelists said at the LNG 360 Forum Latin America & Caribbean.

Political conditions will also play a major role, as well as what level of oil and gas that countries like pre-salt powerhouse Brazil and potential shale contender Argentina ultimately produce from promising reserves.

“The US… has the potential of becoming the single largest LNG producer in the world,” Todd Peterson, an advisor to US LNG projects at Japan’s Itochu Group, told a panel at the conference.

“(US benchmark) Henry Hub could have quite an impact on natural gas prices around the world. It is going to help develop LNG projects in the Caribbean, Central America and South America and around the world.”

Even amid a ramp-up in oil and gas activity, many countries will still need LNG to supplement their energy needs in the medium to long term, panelists said.

The liquefied gas can also serve as a hedge if neighbours interrupt pipeline shipments for political reasons as well as helping to moderate seasonal and year-to-year variations, said Rudolf Araneda, chief executive of Chile’s Gas Atacama.

Brazil, for instance, must tap extra power during arid years when it generates less hydropower, and countries including Argentina see major seasonal fluctuations depending on weather conditions.

Who these nations buy from will be crucial as they are unlikely to reap a price advantage from North American supplies through international trading companies, Araneda said.

“It is key for South America and Central America to find a way of accessing in a direct way (the exports) or the price will not be lower than buying LNG from the rest of the world,” Araneda said.

“…It is key for South American future and competitiveness to make sure they have access to the most competitive fuel supply.”

But LNG as an overall power source will be pitted against regional pipeline gas at $1 to $2 per million British thermal units.

LNG from the US might range between $4 to $8 per mmBtu but only if commodity prices hold.

That said, the hemisphere could be flooded with excess capacity if scads of US LNG export facilities are built, which could work to Latin America’s advantage, according to Tony Teo, technology and business director for DNV GL North America Maritime.

The recovery of the nuclear energy business in top LNG consumer Japan following the 2011 Fukushima disaster may also put downward pressure on pricing, Teo added.

Customers also have a range of of options for import facilities in today’s market, Teo said.

Prospective customers can presently contract a 1 billion-cubic-foot capacity floating regasification unit from experienced Korean shipyards for about $270 million or convert a carrier for $160 million.

Traditional onshore terminals have averaged in the $700 million range for similar capacity, he said.

Theoretically the region has the gas reserves ultimately for self-sufficiency or perhaps even LNG exports, according to Guy Broggi, senior LNG advisor to France’s Total Gas & Power.

That list is topped by Argentina, which the US Energy Information Administration estimates as having the world’s second-largest shale gas reserves at 802 trillion cubic feet.

One day, Broggi joked: “We can have a Qatar here.”

Argentina state oil company YPF is beginning to drill and develop shale resources but it will likely be three to four years at minimum before that picture comes into focus, according to Alejandro Fernandez, operations manager for YPF’s Gas & Energy Department.

“We don’t have the crystal ball,” he said. “LNG will stay for the next couple of years.”

For the moment imports are expected to remain level with last year from the country’s two import facilities built in 2007 and 2011, Bahia Blanca and Escobar.
*Kathrine Schmidt, Upstreamonline

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