U.S. to Asia gas price gap to vanish over long term -Exxon

Reuters

DAEGU, South Korea, Oct 14 (Reuters) - The cost ofdelivering U.S. gas to Asia will eventually rise as U.S.production costs increase, erasing North America's priceadvantage over other global suppliers of the fuel in itsliquefied form, an ExxonMobil executive said on Monday.

The development will disappoint Japan and other buyers whoare counting on bringing liquefied natural gas (LNG) to Asia athuge discounts.

Prices for U.S. natural gas are currently around $3.80 permillion British thermal units (mmBtu) compared with just over$16 per mmBtu for LNG delivered into Asia.

"I think there is a misperception out there that with HenryHub sales from $3.50 we can land LNG in Asia for $11, $12 (permillion British thermal units)," Richard Guerrant, ExxonMobil'sglobal vice president for LNG, told the World Energy Congress inSouth Korea.

"Over time the arbitrage is going to be consumed ... and youcan expect a convergence of prices."

U.S. natural gas prices are currently below replacementcosts because producers are drilling in areas rich in morelucrative petroleum liquids, which subsidise the cost ofdrilling for the cheaper gas, Guerrant said.

History indicates those low prices cannot be maintained overthe long term, he added.

"Since the gas produced from liquid-rich places is notenough to meet long-term gas demand in North America, the U.S.will eventually need to begin drilling dry gas places to supportdomestic and export demand," he told the conference, held in thecity of Daegu, about 300 kilometres southeast of Seoul.

Export volumes from the U.S. to Asia may also be limited byregulatory hurdles, Guerrant said, with only four projectsrepresenting about 51 million tonnes of LNG a year having beenapproved so far.

"There is still some uncertainty over the amount of exportsthat U.S. will approve," he said.

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