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China and Singapore Latest to Invest in US LNG Facility

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An expanded Panama Canal will make the $1 billion investment in Cheniere Energy's LNG terminal go a really long way.

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MINYANVILLE ORIGINAL China and Singapore have invested a combined $1 billion into a planned Louisiana-based liquid natural gas export facility being built by Cheniere Energy, Inc. (LNG) in a bid to secure access to cheaper US natural gas, currently priced around $3/mmBtu compared with Asian prices of $13/mmBtu.

The price advantage is due to the United States' utilization of hydraulic fracturing, more popularly known as 'fracking,' which has opened up massive natural gas resources for comparatively little investment when considering natural gas found in other areas of the world.

Cheniere has been actively seeking partners for the $5.6 billion expansion to its Sabine Pass natural gas liquefaction plant and export terminal in Cameron Parish, Louisiana. When completed in 2015, Sabine Pass will be the first liquid natural gas export facility to open within the United States in the past 46 years. The facility will house two LNG trains, where natural gas is purified and liquefied for transport. Each train is capable of producing 4 million tons of liquefied gas per year. [Editor's note: "Train" is an industry term. The facility is shaped like a long train, these are not actual trains.] According Cheniere's website, there is enough room for two more trains, and further expansion will be considered depending on customer demand.

By comparison, according to the New York Times, Qatar, the world's largest LNG exporter, shipped 77 million tons of LNG last year.

Expanded Canal, US LNG Supplies Are Key

The Panama Canal expansion is a key factor in the viability of the Cheniere project, as it links the Louisiana-based production from the east of the Canal to Asian demand which lies on the west.

The last LNG export terminal to open in the United States was the Nikiski, Alaska, liquefaction plant in 1969, which is now owned and operated by ConocoPhillips (COP) and has an export capacity of 1.3 million tons per year. When it opened, the plant utilized then-recent discoveries of natural gas deposits to supply Japanese utilities, but was eventually 'eclipsed' by the rise of exporters in Indonesia, Malaysia, Egypt, Trinidad & Tobago, Qatar, Yemen, Russia, and Norway.

This is all according to a recent report compiled by the Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects -- a government organization tasked with regulating Alaskan natural gas developments.

The report goes on to underscore the importance of the expanded Panama Canal to the global natural gas industry.

"Right now, only 6% of the [global] LNG fleet of under 400 ships can squeeze through the canal...But, when the Panama Canal expansion is done, scheduled for 2014, 80 percent of the fleet will fit through the canal."

This is quite a jump in capacity, and awards the US a competitive advantage in the global LNG market.

As reported by Minyanville this past Friday in Double Wide: Who's Set to Benefit From the Expanded Panama Canal?, the United States saw a 35% increase in extractable natural gas between 2006 and 2008. This quickly gave the US a large surplus of natural gas, as well as a competitive edge against liquid natural gas exporters like Qatar, Yemen, Indonesia, and Australia.

A year before Cheniere's terminal expansion, the Canal's expansion will be complete in 2014. A third lane will be able to accommodate ships with nearly three times the cargo capacity than those previously capable of transversing the canal.

However, despite the United States 'glut' of natural gas resources -- a majority of which are located in the Eastern and South-Eastern United States -- only Cheniere has obtained permission from The US Department of Energy to export liquid natural gas. All other US applications are currently on hold until the Department of Energy completes a study on the economic consequences of exporting LNG.

Asians Rush to Secure Access to LNG Supplies

Reuters reported that the Chinese and Singaporean investments were made via the countries' respective sovereign wealth funds, China Investment Corp and The Government of Singapore Investment Corp. The size of the investment gives them each an approximately 11.2% share in the project.

Other Asian entities are locking down overseas energy resources needed to fuel their economic expansion. Singapore state investor Temasek Holdings Pte. Ltd, and Hong Kong-based RRJ Capital committed to invest a combined $468 million to the Cheniere export facility in March.

According to Businessweek, BG Group (BRGYY), Gas Natural SDG SA (GASNY), GAIL India Limited (GAIL.NS) and Korea Gas Corp (036469.KS) are all currently signed up as Cheniere customers. Korea Gas has committed to purchasing 3.5 million metric tons of fuel a year from Cheniere's facility. The South Korean, state-owned utility is the largest importer of LNG in the world.

As far as domestic investors, Blackstone Group LP (BX) originally pledged $2 billion in February, which as of May was revised to $1.5 billion.

All the investors are hoping to profit from increased demand for LNG driven by Asia. In June, the International Energy Agency announced that Chinese consumption of natural gas will likely double by 2017, driving global demand up 17% in the same time.

Japan, which has not made an investment in Cheniere, is another major importer of natural gas. It currently imports its gas from Yemen at 10 times the US prices. Recent natural and nuclear disasters increased Japanese demand for non-nuclear resources, although Japanese demand goes back decades.

The US price advantage may only last a few years. In 2018 Australia is poised to rival Qatar as the world's largest exporter of liquid natural gas. Woodside Petroleum (WPL.AX)'s Pluto LNG project in Karratha, Western Australia, which became operational in April, and BG Groups' Queensland Curtis LNG Project, which is one of Australia's largest capital infrastructure projects, and eight other additional projects are expected to raise Australia's LNG output from nearly 20 million last year to 80 million tons within the next five years. Some sources have pegged Australia's output as reaching 100 million tons in 10 years.

Twitter: @brokawbrokaw
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