It’s enough to make aspiring US natural gas exporters salivate. In Asia, the “clean” hydrocarbon now fetches four times its price at home. A chunky gap must last decades to justify the infrastructure investments required to make exports possible. Still, surging global demand and booming US drilling mean such multi-billion outlays might now make sense.
Facilities to cool gas to minus 260 degrees Fahrenheit are massively costly. Cheniere Energy, based in Houston, is planning to spend over $6 billion on its facility which is scheduled to open in 2015. And energy infrastructure builders have badly misjudged the market before. Liquefied natural gas (LNG) import facilities - built on the mistaken assumption that the United States would be dependent on foreign sources - now stand idle.
As recently as a year ago, exporting LNG from the United States looked like a fool’s errand. But it looks more viable following Japan’s nuclear accident in March, where shutdowns have led to a rise in gas demand. Asian prices have climbed 50 percent since March, according to consultancy IHS. The pricing gap may well be sustained by the fact that nuclear power is now being shunned by other nations - including Taiwan and Germany.
At the same time, US gas drillers have been more prolific than expected. At $3.60 per million British thermal units - down 15 per cent this year - the US price now compares to more than $15 in Asia and over $10 in the United Kingdom. A spread of just $4 for Europe and $6 for Asia would justify the infrastructure investment, according to IHS. US gas exporters have a far bigger margin for error at present.
Big risks remain. If Europe and Asia follow the United States in enthusiastically developing shale gas reserves, the current price gulf may narrow. There are valid questions about whether exporting gas is compatible with the US goal of seeking energy independence. Exporters need the stomach to navigate a complex maze of official authorisations too, though the go-aheads granted to Dominion Resources on October 12 show that it is possible to overcome these hurdles. Still, the commercial math for gas exports looks much more promising than at the start of 2011.