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Sabine Pass LNG Terminal that Will Change US Energy

Sabine Pass LNG Terminal

The structure itself is impressive. A winding grid of steel pipes, giant cooling systems, five massive storage tanks that can each hold 17 billion cubic feet of equivalent of natural gas span over 1,000 acres along the Sabine Pass River on the border between Louisiana and Texas. The planet, which Houston-based Cheniere Energy spent more than $20 billion and ten years to construct, is named after the river – Sabine Pass LNG Terminal.

Each day, more than 700 million cubic feet of liquefied natural gas will arrive at the port, and after being processed, the child hydrocarbons will be loaded onto tankers and shipped worldwide, as far as India and Japan, where gas prices are 3 times higher.

The Cheniere facility was originally designed to import, not export natural gas. The switch was largely masterminded by Charif Shouki who founded Cheniere in 1996. In the late 90s, the company primarily focused on drilling, but in 2004, Souki saw the future of LNG and pioneered a movement to build the import (now export) plant. Just months before the facility would send away its first tankers of LNG, Souki was replaced as CEO.

Cheniere expects the first maiden shipment from the Louisiana megaproject to be in February or March. The landmark debut was postponed from January, after a technical problem delayed the procedure.

As long as the terminal doesn’t experience any more launch snafus, America is poised to become a dominant force in the global gas export market.

America, the Global Exporter

2016 marks the first year when the US will export LNG in its entire history as a nation.

Just ten years ago, the US was a net importer of natural gas. But new advanced drilling technologies that allow oil companies to drill unconventional hydrocarbon reserves in shale-rich places like North Dakota’s Bakken field and Texas’s Eagle Ford formation, have the US on its way to becoming a net exporter. About 7000 million cubic feet of natural gas from North Dakota, Texas, Pennsylvania, Ohio, and other natural-resource rich states will funnel south in a pipeline maze down to Cheniere’s terminal each day.

Four more similar terminals are already under construction. Two more in Texas (Cheniere Energy’s in Corpus Christi, Freeport LNG in Quintana) have already broken ground, as well the Cameron LNG project in Hackberry, Louisiana and power producer Dominion Resources in Cove Point, Maryland. Including Cheniere, these five plants will have an estimated capacity of 7.5 billion cubic feet per day.

Before 2020, the US is set to be third-largest exporter of LNG worldwide, after Qatar and Australia. The Energy Information Administration estimates that 2015 yielded an average production rate of 78.92 billion cubic feet per day.

Effect on Europe and Asian markets

The entrance of US natural gas on the global market will change the geopolitics and economics of energy.

Like any industry, another LNG player on the worldwide market will drive competition, innovation, and new advances in technology.

American LNG is mostly a mutually beneficial relationship between supplier and buyer. The US can sell its cheap natural gas overseas for higher prices. For example, if 1000 cubic feet of LNG costs $4 dollars in the US, but $10 in Asia, both parties “win” with any price set between $4 and $10: the US upsells its product and the Asian client gets a slight discount.

For European customers, it offers an alternative to Russian energy dominance in the region. But more important, it offers a bargaining chip. Lithuania, a Baltic state that faces constant political pressure from Russia, has built its own LNG terminal to relieve some of this pressure. This doesn’t mean Lithuania will stop buying inexpensive gas from Russia; but it does bring Russian gas suppliers to the negotiating table.

The potential for LNG imports to Europe is massive – but it’s unlikely that US LNG will be able to compete with cheap pipeline gas imports from Russia.

Europe follows the price, not the delivery method.

In 2014, the EU imported 45 billion cubic meters of LNG, 13.5%  of the area’s total gas imports. Two years before, in 2012, LNG was more competitive and the EU imported 19% of total gas imports as LNG.  According to an estimate by Societe Generale, Europe’s total LNG imports in 2016 will be 45 billion cubic meters, a 22% increase from last year.
The US won’t easily take over the LNG import market in the South and East Asia, where Qatar and Australia already have a market presence.

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