The geographic location of proposed LNG export facilities in North America will determine the global markets they will serve, as well as the long-term buyers that will guarantee revenues to help secure project financing. Each proposed facility will have unique opportunities and challenges, but distance to market may be the primary consideration for securing Asian and European customers.
The U.S. Department of Energy (DOE) and the Canadian National Energy Board (NEB) have approved an increasing number of North American facilities to export liquefied natural gas (LNG) internationally. In addition, both Asian and European markets today support LNG prices that would encourage North American exports.
As seen on the accompanying map, LNG export facilities in North America can be grouped into three regions – Pacific Northwest, Gulf Coast and East Coast. Each region has its own unique prospects and disadvantages. The proximity to a respective market is a facility’s competitive advantage.
In the Pacific Northwest, the proximity to Asian markets gives the Canadian and U.S. LNG export terminals a transportation advantage over the Gulf and East Coast locations. According to the trade publication PortWorld, the British Columbia to Tokyo run is approximately 4,000 nautical miles, which translates to a round trip of roughly 25 days at a cost of $1 per million British thermal units (MMBtu).
Across the border and down the coast, Jordan Cove in Coos Bay, Ore., has been approved by the DOE. It is the first greenfield LNG export terminal approved by the DOE, although it is still awaiting other federal and state approvals.
While offering lower shipping costs to the Asian market, the proposed LNG export terminals will also require pipeline connections to bring gas to the facilities, thus offsetting some of the potential shipping cost savings.
On the other hand, brownfield LNG facilities along the Texas and Louisiana coast have existing pipeline headers and multiple interconnects to long haul pipelines, along with access to emerging shale gas supplies. The combined export capacity out of West Louisiana will make it the largest gas demand center in North America, comparable to the Houston Ship Channel. While the infrastructure exists, the amount of LNG exports expected in the region could cause capacity constraints on the regional pipeline infrastructure in the future.
The Gulf Coast ports have the advantage of vying for traffic in either direction – Asia or Europe – whereas this would be less practical for the other two regions. Gulf Coast facilities will be able to cost-effectively reach Asian markets through the Panama Canal expansion, which currently has a completion date of 2016. The distance from the Gulf Coast to Tokyo through the Panama Canal is approximately 9,200 nautical miles, which will take 50 days round trip and cost anywhere from $2 to $2.50/MMBtu, depending on the new toll formula for the expanded canal.
While current Asian prices for landed LNG exceed European prices, the recent disputes with Russia have created an interesting opportunity for accelerated development of LNG export capacity for North America. The European Union may look to the U.S. to supply more of its energy needs.
For example, the distance from Cove Point, Maryland, to Europe is estimated to be 3,100 nautical miles, or about a cost of $0.80/MMBtu, while the distance from the Gulf Coast to Europe is approximately 4,600 nautical miles, equivalent to a shipping cost of around $1.25/MMBtu.
While the continued emergence of shale gas production is expected to outpace local demand, natural gas is expected to remain in a tight supply/demand balance. This, in turn, creates a growing opportunity for project developers to export LNG from North America into the global market.
