Home' Trinidad and Tobago Guardian : July 4th 2013 Contents BG12 | COMMENTARY
BUSINESS GUARDIAN www.guardian.co.tt JULY 2013 • WEEK ONE
Will shale gas exports from the United
States threaten T&T's (T&T) niche
gas market in the Caribbean?
There is a large body of public opinion (reflected in the
media) that seems to think it will be a threat. Some of us hold
the opposite point of view. The shale gas threat has been
overblown and T&T need not fear any immediate significant
competition from US exporters for the LNG market in the
Caribbean. Indeed, T&T is very capable of holding its own.
The US shale revolution
No one should underplay the impressive energy changes
taking place in the US. It is now the world's largest producer
of natural gas and could become the world's largest hydrocarbon
producer by 2020, and a net exporter of energy by 2035. This
remarkable historical shift is due largely to the so-called "shale
According to a recent Energy Information Agency (EIA)
study, shale now comprises 31 per cent total natural gas reserves
in the US and by 2035, shale drilling will account for about
half of natural gas production.
US exports of LNG: An obstacle course
The US is expected to become a future exporter of LNG
and it will have an impact on the global and regional LNG
supply/demand balance. But LNG exports from the US are
not yet a done deal!
First, much of the current debate in the US with respect
to natural gas exports is focused on LNG. The US Department
of Energy (DOE) conducts a drawn out public interest analysis
of applications to export LNG to countries that do not have
free trade agreements (FTA) with the US.
In 2011, the agency approved an application to ship LNG
from Cheniere Energy's Sabine Pass liquefaction project in
Louisiana, and in May 2013, granted conditional approval to
Freeport LNG to export up to 1.4 Bcf/d over 20 years from
its facility on Quintana Island, Texas. Both of these are to
non-FTA countries. Other pending applications may be
approved before the end of 2013.
Second, aside from obtaining export authorisation, project
sponsors must also obtain authorisation to build new LNG
terminals ("green field") or expand a terminal ("brown field")
from the Federal Energy Regulatory Commission (FERC).
Most of the LNG terminals in existence today were initially
designed to receive natural gas imports, so they lack the
essential feature for exporting LNG---namely the liquefaction
facility. In April 2012, Sabine Pass became the first terminal
to receive FERC's approval.
Third, the US has only the fourth largest technically recov-
erable shale gas reserves after China, Argentina and Algeria.
However, by the early 2020s, many global LNG projects may
come online, and the US could face steep competition from
large existing and emerging suppliers, such as Qatar, Australia,
Canada and Russia.
Finally, apart from the stiff competition in the global LNG
market, there are other hurdles for proposed US LNG export
projects from shale gas. They face a steep uphill battle of
opposition from environmentalists, questionable economics
(the high capital cost of a "green field" export facility), and
the volatile natural gas price differentials among gas markets.
Since shale gas reserves decline much faster than conventional
ones, the EIA forecasts that LNG exports from shale gas will
probably peak as early as 2027.
T&T's LNG game advantage
So if the US shale gas revolution is not yet a "game changer"
for the international market what are T&T's chances of remain-
ing viable in global LNG markets? Obviously, T&T can expect
US competition in the 21 countries to which T&T now supplies
LNG. But there are several factors in T&T's favour:
• The trading of gas will continue to grow faster than con-
sumption. Global natural gas demand is projected to outstrip
supply in the near future. LNG will play an even larger role.
Global LNG production is growing significantly at 4.3 per cent
per annum and expected to account for 15.5 per cent of global
gas consumption by 2030. There will be significant new com-
petition for global LNG markets. At present, T&T remains a
significant player in global LNG trade, holding six per cent
of the LNG market and ranked sixth in the world for LNG
• The flexibility of LNG as a commodity allows producers
to switch markets. T&T, Nigeria and Qatar are leading the
LNG export diversification. There is a dramatic market shift
underway for T&T's LNG exports away from the US and
toward South America and Europe where prices are higher.
For example, according to Atlantic, in 2008 about 50 per cent
of its LNG went into the US.
In 2012 it was less than 20 per cent and declining. By
contrast, the percentage of Atlantic's cargoes into South America
has grown to more than 40 per cent, with Argentina being
the largest importer.
• T&T has a fairly long breathing space before US LNG
competition kicks in. But there is competition in the long
term. According to Albert G Nahas, vice president for inter-
national government affairs at Cheniere Energy, the company
does not intend to use its Sabine Pass terminal in Louisiana
(under construction) to access the Caribbean market.
Capacity is pretty much sold out at Sabine Pass through
already signed contracts to BG, Gas Natural, Kogas, GAIL,
Total and Chevron.
Cheniere is also looking for regulatory approval for a second
export gas terminal at Corpus Christi to supply Caribbean
customers. Construction will start in 2016, so there will be
no export from there until 2018-2019. This gives T&T time
to get its act together and maximise efficiency at the planned
"small LNG" plant at La Brea so that LNG sales in the Caribbean
can be price competitive.
• Development costs per unit tonne of new LNG liquefaction
plants worldwide are very high compared to the original T&T
trains. T&T's LNG for some time will still be cheaper than
in most of the world. T&T's existing trains have a lower cost
base and global pricing slack.
The "Bucket (to do) List"
T&T can remain competitive provided it has sufficient
reserves to continue as a major gas exporter. According to the
last Ryder Scott Gas Audit in July 2012, T&T has non-associated
gas reserves amounting to 13.2 tcf (proven), 6.0 tcf (probable),
and 6.1 tcf (possible). In addition, there are "un-risked explorato-
ry resources" amounting to 30.4 tcf. Exploration in the deep-
water has been ramped up through successive bid rounds.
Remaining competitive will also entail the following:
• providing creative fiscal regimes that welcome foreign
investment models that create alignment between the objectives
of the host government and foreign investors;
• the capture of small and medium energy LNG cargoes in
the Caribbean and Central America;
• investment in small CNG import terminals for regional
markets to which T&T will be the main exporter;
• continued diversification of trading partners; capitalising
on the huge Asian market (which could be facilitated by the
current expansion of the Panama Canal).
So if there is a serious threat, it is about five years down
the road. In the past 105 years, T&T has developed an oil
industry, morphed into a gas economy, and established a for-
midable petrochemical sector.
We can meet new challenges again. (See Energy Chamber
column on Page 21)
Anthony Bryan is a professor/senior fellow at the Institute
of International Relations, UWI, St Augustine
US shale gas exports:
Idle threat to T&T's LNG
markets in the Caribbean?
ANTHONY T BRYAN
UK shale gas resources may be far greater than
previously thought, a report for the government
The British Geological Survey estimates there
may be 1,300 trillion cubic feet of shale gas
present in the north of England---double previous
Meanwhile, the government has announced
measures to enable shale gas drilling as part of
its infrastructure plans.
Energy Minister Michael Fallon described shale
gas as "an exciting new energy resource".
The BGS said its estimate for shale gas resources
in the Bowland Basin region, which stretches
from Cheshire to Yorkshire, represented potential
resources, but "not the gas that might be possible
"Shale gas clearly has potential in Britain, but
it will require geological and engineering expertise,
investment and protection of the environment,"
Drilling companies have previously estimated
that they may be able to extract around ten per
cent of this gas - equivalent to around 130 trillion
If the estimates are proved correct, that would
still suggest recoverable reserves of shale gas far
in excess of the three trillion cubic feet of gas
currently consumed in the UK each year.
Shale gas is extracted through "fracking": the
controversial process of freeing trapped gas by
pumping in a mixture of water, sand and chem-
The process has helped boost the domestic
energy industry in the US in recent years, where
oil production has risen and gas prices have
In a statement, the Department of Energy and
Climate Change said: "Though it is early days
for shale in the UK, it has the potential to con-
tribute to the UK's energy security, increase inward
investment and growth."
The government has unveiled a package of
reforms to encourage development in the industry.
They include new planning guidelines to make
the process of approving new drilling sites more
streamlined, and a consultation on tax incentives
to encourage exploration.
Communities affected by shale gas drilling are
also expected to receive £100,000 in "community
benefits" and one per cent of production revenues,
should sites start producing gas. (BBC)
UK shale gas resources 'greater than thought'
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