INSIGHT: LNG exports threaten US chemical sector

25 January 2013 17:10  [Source: ICIS news]

By Joseph Chang

LNG exports a possible demand outlet for the USNEW YORK (ICIS)--The heads of US chemical companies are lining up against exports of liquefied natural gas (LNG) as this threatens to bring the highly advantageous local price up toward a global level.

And while LNG exports for fuel – being mostly dry gas – would not directly take away ethane feedstock for chemical production, the impact on the sector could be considerable.

US LNG would be shipped to terminals abroad where there is the greatest demand – and highest price. The prospect of LNG exports only became feasible after the US shale gas boom, which has flooded the market with cheap gas.

US-based Cheniere Energy Partners is proceeding with its massive liquefaction project at the Sabine Pass LNG terminal in Cameron Parish, Louisiana, to be able to export LNG. It is planning to build five LNG trains, each with liquefaction capacity of 4.5m tonnes/year, for a total of 22.5m tonnes/year.

LNG exports from the first train are set to commence by late 2015 and from the second train six to nine months later. Construction of the third and fourth trains are expected to begin sometime in 2013.

Cheniere has already signed supply contracts with five customers – energy companies based in the UK, France, Spain, India and South Korea – for LNG production from the five trains. The latest deal was announced in December 2012 when Cheniere signed a 20-year contract to supply LNG to France-based Total from its fifth train. Deliveries are expected by 2018.

The US chemical industry uses natural gas as feedstock for around 85% of its production and has profited mightily from the low price. Now the sector sees gas supplies potentially being diverted abroad for fuel, tightening the supply/demand balance.

But LNG exports would mostly take the form of dry gas whereas US crackers consume natural gas liquids (NGLs) such as ethane and propane. So why the concern?

One reason is that the overall greater demand from LNG exports would raise natural gas prices, bringing ethane and propane up with it. In addition, drilling could shift to more dry gas fields, crimping NGLs production and resulting in higher prices.

On 22 January, Peter Huntsman, CEO of US-based chemical producer Huntsman, came out against unlimited exports of US natural gas, joining the trade group America’s Energy Advantage. The group’s members include Dow Chemical, Celanese and Eastman Chemical.

“We think it very short-sighted and bad public policy to allow our nation’s natural gas advantage to be stripped and sent overseas to build a new manufacturing base that would otherwise be built here in the US,” said Huntsman.

Indeed Huntsman points out another risk to the chemical sector from US LNG exports. These exports could raise the overall price of natural gas in the US, hindering expansions in all kinds of manufacturing sectors that use gas as an energy source such as steel, automotive and construction.

So while LNG exports may not directly impact ethane feedstock for the chemical sector, higher natural gas prices in the US resulting from exports could restrict investment in other manufacturing sectors – many of which are customers of the chemical industry.

Dow Chemical CEO Andrew Liveris has been the most vocal advocate against US LNG exports. On 19 January, Dow announced its decision to withdraw from the trade group National Association of Manufacturers because it disagrees with the organisation’s position to support US exports of natural gas.

Dow also indicated it was weighing its membership with the American Chemistry Council (ACC), according to a media report.

On 16 January, at a meeting of the Societe de Chimie Industrielle in New York, ACC CEO Cal Dooley said the ACC does not oppose natural gas exports.

On 24 January, Dow called a recently released US liquefied natural gas (LNG) exports study “fundamentally flawed” and “inadequate for assessing the macroeconomic impacts”.

The public comment filing was in response to the US Department of Energy (DOE)-commissioned study made by New York-based NERA Economic Consulting released on 5 December.

The NERA Report concluded positive economic outcomes with the advent of proposed LNG exports, even in cases of unlimited exports, finding that US natural gas prices did not rise to oil parity or levels in consuming regions.

Also on 24 January, an ACC spokesman confirmed that the group removed the statement on its website that said it supports US exports of LNG.

“The statement accurately reflects executive committee policy dating to February 2012,” the ACC said in a statement provided by spokesman Warren Robinson.

“However, the issue and its implications for some of our members have evolved. We therefore plan to further discuss this issue to assure all members' views are fully represented and the implications understood,” it added.

Dow lauded the ACC for its recent action.

“We have had constructive dialogue with the ACC and are pleased they have removed the objectionable statement from their website and have agreed to further board level dialogue regarding the overall natural gas issue,” said Dow spokeswoman Kelly Chandler.

“We value our relationship with the ACC and remain open-minded as this dialogue proceeds regarding Dow’s continued participation in ACC,” she added.

Tracy Dang and Jeremy Pafford in Houston contributed to this article

Read Paul Hodges’ Chemicals and the Economy blog
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By: Joseph Chang
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