25 January 2013 10:29 [Source: ICB]
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 towards a global price. 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.
The US is preparing for major exports of LNG
US-based Cheniere Energy Partners is proceeding with its massive liquefaction project at its 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 on the third and fourth trains is 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 80% of production and has profited mightily from the low price. Now they see 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 production would raise overall natural gas prices, possibly bringing ethane and propane up with it. In addition, drilling could shift to more dry gas fields, crimping NGL 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 (see page 8).
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 affect 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.
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