Bonanza in gas exports to US west coast a pipedream, banker warns

AUSTRALIAN liquefied natural gas producers might have difficulty convincing US buyers to enter sales deals, according to JP Morgan's global head of energy strategy, Katherine Spector.
Speaking to The Australian, Ms Spector said the US gas market in the medium to long term was likely to be affected by two factors: geography and market structure.
Geography meant that US buyers were more likely to import gas from regions with which they already had experience, such as Trinidad & Tobago, North Africa and current suppliers to the Atlantic Basin.
Market structure meant that US customers wanted the LNG market to develop more than the oil market.
"I think you'll find that LNG will have to move along more towards a spot market and close to what happens in the oil market before there will be a big surge in LNG imports," Ms Spector said.
Australian LNG investors such as BHP Billiton and Woodside are trying to convince state regulators in California to approve an LNG receival terminal in the face of staunch opposition from locals concerned at safety impacts and visual pollution.
The federal Government has said the US market for LNG could be worth as much as $60 billion to the Australian industry if shipments begin next decade.
But Ms Spector said that in the US, LNG was not being delivered at times when shortages of natural gas shipped by pipeline were sending prices higher; individual cargoes were often transferred to other customers in other countries where prices were higher.
The existing five US LNG receiving terminals were operating at only about 50 per cent capacity, which reflected the market's reluctance to become involved in long-term contracts that were the norm in the Asian LNG market, Ms Spector said.
"I think US customers find that long-term contract arrangements lack flexibility," she said, pointing out that few of the 40-or-so LNG receival terminals being promoted in the US would proceed.
She forecast also that Mexico, where LNG receival terminals are being built, ostensibly as a means of overcoming US regulatory delays on terminal approvals, would increasingly use LNG imports for its own needs.
While Mexico had substantial natural reserves, it lacked the capital to develop them, Ms Spector said.
The JP Morgan analyst conceded that the capacity of the US gas producers to meet demand was declining as was the ability of Canada to pick up the shortfall.
"Some years, production is going to be higher; others, lower but the trend is flat to declining," she said.
But the US gas market should be considered in two phases: the immediate one where Henry Hub prices responded to the weather; and the long term, where the US would have to increase import levels in competition with other international buyers.
"This divergence in the market, where Henry Hub gas prices currently reflect the fact that inventories are full and the weather in the northeast is far warmer than expected for the time of the year, should be split for the medium to long term.
"That will see US customers using more imported gas - in a market that more closely reflects the oil market - from areas that already supply customers."
Ms Spector agreed there were a lot of LNG production facilities in Australia and the US that were likely to be considered as suppliers on the spot market.