From The Wall Street Journal

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.

Shell and Energy Transfer 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.

The Anglo-Dutch energy giant and U.S. pipeline operator own equal economic stakes in the project and will decide together whether they should proceed with construction pending the outcome of bidding and their analysis of the global LNG market.

A number of U.S. LNG export facilities are expected to begin operations in the coming years, as companies seek to mop up the cheap gas from U.S. shale and ship liquefied gas to customers overseas. China has emerged as a key source of LNG demand as the country aims to combat air pollution by moving away from coal-powered plants into cleaner fuels like natural gas and renewables. Shell currently supplies about 25% of China’s LNG.

Shell has already committed to another big 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. Shell’s bet is that natural gas will take market share from crude oil as global consumers seek cleaner alternatives and as electric vehicles begin to displace those with combustion engines.

Energy companies’ race to sell shale gas overseas comes at a time of rising U.S. consumption of the heating and power-generation fuel. The U.S. Energy Information Administration on Monday said domestic natural-gas consumption rose 10% in 2018 to an all-time high, as the fuel widened its lead over coal as the top source of electricity generation. Gas accounted for 35% of U.S. electricity generation, while coal’s share was 27% and nuclear was 19%, the EIA said.

Meanwhile, LNG export volumes from the mainland U.S. have surged to as high as 5.5 billion cubic feet a day this year, up from almost nothing in 2015, according to Tudor, Pickering, Holt & Co.

“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.

U.S. natural gas futures for April delivery recently traded at $2.75, up about 5% from a year ago.

Tags: ,

Legal Notice