Shell Boosts Bet on North American LNG Exports -- Update
March 25 2019 - 6:00PM
Dow Jones News
By Ryan Dezember and Inyoung Hwang
Royal Dutch Shell PLC and Energy Transfer LP said they are
pursuing plans to convert a liquefied-natural-gas import facility
in Louisiana into an export terminal, a bet that the future of U.S.
shale gas lies in selling it for higher prices in overseas
markets.
The Anglo-Dutch energy giant and U.S. pipeline operator said
they are putting contracts out for bid to engineers and
construction companies to reconfigure Energy Transfer's existing
import facility in Lake Charles, La. The proposed facility would
have the capacity to ship 16.5 million tons of U.S. natural gas a
year, the companies said Monday.
"You can model and study it but the best way is to go out to
tender and get a price that someone is willing to commit to,"
Maarten Wetselaar, Shell's director of integrated gas and new
energies, said in an interview Monday in New York. "We are done
theorizing on it; we just want to find out."
The move comes amid a prolonged period of low natural-gas prices
in the U.S., where futures for April delivery settled Monday at
$2.755 per million British thermal units. That is up 5% from a year
ago but still low enough to put financial pressure on the producers
that have flooded the domestic market with shale gas in recent
years.
Shell and Energy Transfer own equal economic stakes in the Lake
Charles project, which was built at a time when many believed the
U.S. was running low on gas and would rely on imports. The partners
will decide together whether they should proceed with converting
the Louisiana terminal pending the outcome of bidding and their
analysis of the global LNG market.
One key factor, Mr. Wetselaar said, would be finding the 5,000
workers the companies estimate they will need to build the export
facility. Labor might be particularly tight at a time when Exxon
Mobil Corp. and Qatar Petroleum have announced they will build a
rival export terminal nearby in Texas.
Mr. Wetselaar said the Lake Charles plant should have advantages
over competitors because much of the necessary infrastructure has
already been built. "If you can be the cheapest Gulf Coast project,
then you'll always be in the money because it's such a big source
of supply," he said.
U.S. LNG exports have surged since early 2016. There are now
three export facilities operating from the U.S. mainland, with
several more slated to come online over the next few years as big
energy companies seek to mop up the cheap shale gas and ship it in
liquefied form to customers overseas, where the price is
better.
China has emerged as a key buyer of U.S. gas as the country
combats air pollution by replacing coal-fired power plants with
those that produce electricity from cleaner inputs, such as natural
gas, wind and solar.
Lately, LNG prices in Asia have sunk below $5 per million
British thermal units, their lowest level in nearly three years.
Shell, which supplied roughly 25% of China's LNG last year, is
bullish on the market regardless of current price moves because of
the Chinese government's goal to boost the amount of gas used to
produce electricity there to 15% from about 7% by 2030, Mr.
Wetselaar said.
"Even if the Chinese economy decelerates, the quest to clean up
the air in the big cities is going to continue," he said.
Houston investment bank Tudor, Pickering, Holt & Co. told
clients on Monday that the recent weakness in global LNG prices may
prompt U.S. exporters to schedule extended downtime for maintenance
this summer or to delay starting up new facilities if international
prices languish. LNG export facilities have been counted on to
absorb domestic production that has been soaring to new highs, and
delays could push local prices lower.
"With the U.S. accounting for more than 80% of global new export
capacity expected online through 2020, U.S. gas prices will become
progressively more influenced by the strength of the Chinese
economy," Barclays analysts said in a report last week.
Shell, which last year accounted for about a quarter of all LNG
sold globally, has already committed, along with several large
Asian investors, to build a $30 billion LNG export facility in
British Columbia that will transport gas gathered in western Canada
to markets abroad.
Shell's leadership staked the company's future on natural gas in
2016 with the $50 billion purchase of rival BG Group PLC, a major
player in LNG markets.
In the U.S., natural gas surpassed coal in 2016 as the top fuel
for generating electricity. The U.S. Energy Information
Administration on Monday said gas widened its lead over coal in
2018, accounting for 35% of electricity generation, compared with
coal's 27%. Overall, domestic natural-gas consumption rose 10% last
year to an all-time high, the EIA said.
Write to Ryan Dezember at ryan.dezember@wsj.com and Inyoung
Hwang at inyoung.hwang1@wsj.com
(END) Dow Jones Newswires
March 25, 2019 17:45 ET (21:45 GMT)
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