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LNG exports officially begin moving without US-flag participation

May 27, 2016 04:38 PM
The Bahamas-flagged Asia Vision in February carried the first overseas export shipment of liquefied natural gas from the Lower 48 states. The tanker departed from Louisiana with cargo intended for Petrobras.

Courtesy Chevron

The Bahamas-flagged Asia Vision in February carried the first overseas export shipment of liquefied natural gas from the Lower 48 states. The tanker departed from Louisiana with cargo intended for Petrobras.

A tanker left Louisiana in February with the first overseas shipment of liquefied natural gas from the continental United States, ushering in a new era for U.S. shale gas producers and the global energy market. 

Asia Vision departed Cheniere Energy’s Sabine Pass export terminal on Feb. 24 with 3 billion cubic feet of LNG for Petrobras, Brazil’s state-owned petroleum company. While natural gas has been exported by pipeline from the Lower 48 and by tanker (in the form of LNG) from Alaska, the shipment marked a key moment in moving the U.S. from a net importer to a net exporter of gas. The U.S. Energy Information Administration (EIA) expects that to happen in 2017.

“This historic event opens a new chapter for the country in energy trade and is a significant milestone for Cheniere as we prepare Train 1 for commercial operations,” Neal Shear, chairman of the board and interim chief executive officer at Cheniere Energy Partners, said in a prepared statement.

The Houston-based company plans to have six trains — the units used to convert natural gas into LNG — in operation at its Sabine Pass facility in the next three years. A second Cheniere LNG export terminal is under construction in Corpus Christi, Texas, and competitors are building three other terminals in Louisiana, Texas and Maryland.

The growth comes despite a worldwide LNG glut, which has kept prices low as demand has lagged behind supply. In a March report, the EIA took that into account and sounded a note of caution about future export development.

“Market conditions have changed since many LNG export projects were initially proposed,” the EIA said. “Proposed LNG terminals in the United States face not only increased competition from other domestic and foreign terminals that have been completed, but they also face uncertainty in global LNG demand. Australia, already a major LNG exporter, plans to expand its LNG export capacity in the coming years. … At the same time, LNG imports by countries in Asia declined slightly in 2015.”

The market downturn hasn’t affected Cheniere’s plans, at least for the near term. The company is chartering six tankers, all foreign-flagged, to move LNG for customers abroad. And many more ships will be required as other U.S. export terminals come on line.

In a February report, the American Journal of Transportation estimated that 100 to 140 LNG carriers would be needed to handle the flow from U.S. shores in the next four years. Unfortunately for American shipbuilders, foreign yards are likely to be providing that tonnage.

“There are 25 LNGCs under construction in Japan and South Korea earmarked for the U.S. trades and 55 on order to independent shipowners not tied to any particular trade that could be available,” the journal reported. “About half of the latter are already chartered to international energy majors that have commitments to purchase U.S. LNG. The 20 additional ships that the five U.S. export projects will require by 2020 will present no problems for the world’s LNGC builders, who delivered 32 such vessels last year.”

As the Sabine Pass terminal moved closer to fruition in 2015, lawmakers led by Rep. John Garamendi, D-Calif., pushed for legislation to require that American LNG exports be carried by U.S.-built, U.S.-flagged ships. But the effort came up short, as did an attempt to keep U.S. crude oil exports off foreign-flagged tankers. Asia Vision is registered in the Bahamas.

Aside from missing an opportunity to strengthen national security, Garamendi said Congress and the Obama administration both missed a chance to enhance the American maritime industry.

“So the ships are going to be built in Korea or China or Japan, and they’ll probably have sailors from Indonesia and Pakistan and who knows where,” he said. “It was just very shortsighted. It would have been a very easy policy decision to make, one that would not have affected the trade. It would have increased the cost by a very small, fractional margin, but the benefit to the United States maritime industry and shipyards would have been enormous.”

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