Price and market trends: US LNG exports could impact NGLs

15 February 2013 09:47  [Source: ICB]

Unlimited US exports of liquefied natural gas (LNG) could impact domestic supplies of natural gas liquids (NGLs), causing volatility in pricing for the key feedstock for US petrochemical producers, a Dow Chemical executive said.

"We support LNG exports, but our concern is with an unchecked level of exports. This has the capacity to drive up prices significantly and reintroduce volatility in gas prices and NGLs," said Kevin Kolevar, vice president of government affairs and public policy at US-based Dow Chemical.

OVERCAPACITY CONCERNS

"The fact that so much capacity is being planned to come on in a compressed timeframe causes concern," he added.

US Ethane

Dow estimates that over a 10-year timeframe, the US could export up to 5-6bn cubic feet/day (bcf) of natural gas through LNG without disrupting the market, if it comes on in a linear fashion.

That would amount to 38-46m tonnes/year of LNG. Yet, there is a total of 199.5m tonnes/year of LNG export capacity being planned in the US, according to an ICIS analysis. For companies that have already announced completion dates in the US in 2015-2018, this amounts to 128.6m tonnes/year.

"It is all about predictability. In the late 1990s, we saw tremendous volatility in natural gas prices, which deterred investment in the chemical sector," Kolevar said.

"But now Dow is back with $4bn in planned investments in the US Gulf, and there is also about $95bn in other manufacturing projects in the US being driven by affordable fuel and feeds. That could introduce 5m new jobs by 2020," said the executive.

WIN-WIN SITUATION

"The upside to doing this right should be huge, and a win-win for all - the oil and gas producers, the manufacturing sector and for consumers," he added.

While LNG exports for fuel would consist primarily of dry gas, where in the process NGLs are stripped out, wet gas LNG containing ethane and propane could be shipped out as well, Kolevar said.

"We support a balanced level of LNG exports, which will drive production and access to NGLs. But it is not a given that NGLs will always be stripped out prior to shipping," he said.

"For example, Japan has specs for wet gas concentrate in LNG. And to what extent would other countries look to use wet gas? We have not heard assurances from the oil and gas community that they would strip out the NGLs."

Already, Switzerland-headquartered INEOS is planning to ship ethane in LNG carriers from Marcus Hook, Pennsylvannia, US, to its cracker in Rafnes, Norway, by 2015, but that is specifically for petrochemical production rather than for fuel - the primary use of LNG.


By: Joseph Chang
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