Monday, March 18, 2013

Investment In US LNG Exports Could Be Destroyed By Japan's Gas Hydrate Breakthrough

The history of technology both destroying and creating wealth may be repeating itself with Japan's gas  hydrates breakthrough and American LNG exports now on a collision course.  Here is the rest of the story.

In 2005 the USA was facing a natural gas shortage, and big dollars were being invested in facilities that would import LNG.  At that point, shale gas was being produced, but very few understood its implications. By 2009, booming shale gas production turned a gas shortage into a gas glut and creatively destroyed billions of dollars invested to import LNG.

The boom in US gas production has birthed a rush to invest billions in facilities to export natural gas.  Today, a particularly attractive market for LNG exports is gas-poor Japan and Asia, where gas is priced as much as $16 per thousand cubic feet. But gas exports won't make it across the Pacific for about another 5 years.

As the shale gas boom in the US shows, a lot can happen in 5 years that turns markets upside down. Indeed, that may have happened just last week.

Last week's news that Japan successfully produced natural gas from oceanic hydrates could make Japan and many other nations gas rich for the first time in human history. The Japanese believe that they may be able to produce oceanic gas commercially within 5 years and by so doing escape expensive gas and end their need for LNG imports.

For investment in America pouring into LNG export facilities that are supposed to begin operating in about 5 years, last week's technological advance to produce gas from ocean hydrates is a brand, new risk.  How big a risk only time will tell.

But Japan's oceanic hydrate breakthrough may well crush America's LNG exports to it and other nations in the currently lucrative Asian gas market.


  1. It could happen, but the likelihood will probably be low.

    In order to "destroy" LNG investments in the U.S., it will have to compete economically against them with what will probably be expensive gas production. Gas hydrate wells will produce at low rates and low pressures and you'll probably need to drill a large number of them to get the same kind of volumes you'd produce from a single shale gas well.

    Plus, when you look at the contracts being signed with the proposed U.S. LNG-export facilities, you'll find the gas-price is being indexed to Henry Hub and, when including liquefaction and transport costs, offers quite a discount to the typical oil-linked prices Japan is currently paying. In other words, chances are, LNG with oil-indexed prices from other countries will be kicked to the curb long before U.S. exports would be.

  2. Good points. Yet, I would not underestimate a mobilized, focused national Japanese government that is desperate for energy.

  3. Concerned ScientistMarch 20, 2013 at 8:07 AM

    John they may produce it for use in Japan where they are used to paying very high prices for gas, but I doubt it will ever compete with shale gas in terms of the cost of producing it and getting it on a ship and sending it to another country. The problems are many - it is in deep water(1000+ feet) where everything costs many times more than it does on land in terms of drilling and infrastructure. If we still want gas in 50 years it may make sense then but as long as we have gas plays like the Marcellus going strong it will not compete.

    That said, I am opposed to exporting US natural gas anyway. I'd much rather see us take the lead in using natural gas for cars and trucks and moving off of coal power than exporting it. Let Europe and China develop their own reserves.

    1. Thank you for the comment. I would not underestimate Japan's ingenuity and resources applied to this challenge.

  4. The Japanese have long sought their own supplies of natural gas and oil. Japanese innovation will open up methane hydrates as a viable source of natural gas to us all and to permanently lead others to this supply for the global market. The net effect will be to add to our already glut natural gas supplies. Natural gas prices will thus remain low domestically. In the U.S. are over-supplied for the demand and this is likely to be the case for the next one hundred years. We need to take advantage of these low prices to boost every aspect of our economy while aiding the environment with methane combustion's small carbon footprint.