The shale gas revolution in the US does not pose a threat to Atlantic LNG's (ALNG) business, according to Nigel Darlow, the company's chief executive officer. In an interview in late-2013 with OGJ in Port of Spain, Darlow said ALNG had made a significant change in its exports with almost half of the country's LNG now being shipped to South America where the prices are rivalling those in the Asia-Pacific region.
"As of the end of September [2013], 45% has gone to South America and 18% to the US market, so you have seen a big change over the last 5 years. If you had asked me that question 5 years ago, probably 80% would have gone to the US market. So there is a huge turnaround in terms of where [ALNG's LNG] is going at the moment and that is in response to pricing," Darlow said.
Trinidad and Tobago was once responsible for as much as 70% of all the LNG imported into the US. Darlow explained that there was a major differential in the LNG prices in North and South America with North America's spot prices at less than $4/MMbtu while South America has spot prices in the vicinity of $15/MMbtu.
Darlow said, "I don't worry about that from [ALNG's] perspective, because if you look at the industry consensus is that the demand will still outstrip these new sources of supply. So we are building all these new plants and all these plants are getting commissioned to be built but even that will not be sufficient to match the expected growth in LNG demand. I think you will still see hunger for [ALNG's] LNG because demand will be that strong, particularly in Asia-Pacific."
Differing 'revolutions'
Darlow noted that there have been significant gas discoveries worldwide, particularly in West Africa as well as new LNG plants coming on stream in several parts of the world including Australia and soon the US, and even those new developments will not be enough to match the expected doubling of LNG demand in the next decade. It is in part why he is confident that ALNG will be in a good position to continue to benefit from competitive prices.
Darlow argued that in 2015 when the Panama Canal expansion is finished, ALNG's vessels will be able to transit the canal and provide much quicker access to the Asia-Pacific.
He said, "To build the average LNG plant, if there is such a thing, costs over five times more per unit-tonne than it cost to build [ALNG], so that means [the company] will have a strong competitive advantage because it has much lower sunk costs. I think [ALNG's] LNG will always have a home in the marketplace."
Darlow argued that the electric power sector in the US will continue to move towards LNG because the advantages of gas over coal from an environmental and efficiency point of view were very clear and in both North America and other markets around the world including China there will be a move away from coal to gas.
He also doubted that China was likely to undergo a similar "shale gas revolution" as has occurred in the US. If this were to happen, it would impact global LNG prices, he said.
"There is a lot to do and a lot of investment to happen to have shale gas in China affect global gas supplies and its very uncertain how that might play out," he said.
Darlow said most of his company's LNG is sold under long-term contracts even though the off-takers trade the LNG to the places that they get the best price.
He thinks going forward there will continue to be regional differentiation of prices because the market is underpinned by long-term contracts. He said unlike oil, there is a need for long-term contracts to underpin the investment. But even though he expects more LNG spot trading, he does not see it being more than 20% of global production.
"When you are investing in LNG you are investing billions and billions of dollars and you need to have an assured cash flow. So you are going to put in place a long-term contract for the majority of your LNG to underpin the investment you are making. What you may find is instead of 100% of your LNG being placed under long-term contract, it might be 80% to give the flexibility to go and put the other LNG into other markets," Darlow said.
New plants, supplies
Darlow also called for the 10 tcf of gas in the Loran Manatee field that is shared between Trinidad and Tobago and Venezuela be brought to the Caribbean twin-island nation for processing in a new LNG plant.
He said, "For me the quickest commercialization of Loran Manatee will be in Trinidad using existing infrastructure but I know there is lot more to it than that. Loran Manatee is reported to contain over 10 tcf that would be enough two LNG trains for 20 years, so there is some gas there which you can potentially build Train 5 off the back of. But, of course, I appreciate the political sensitivities and there is no agreement on how or where that gas gets developed."
Trinidad and Tobago and Venezuela have been in talks for almost a decade on seeking to unitize the fields and then develop the major reserves. The government in Caracas has said that it wants its gas to go to Venezuela with Trinidad and Tobago suggesting that the most commercial arrangement will be to have the gas processed here where there is already significant infrastructure.
Darlow said even if the Loran Manatee discoveries were not developed in Trinidad and Tobago, there was still potential for a Train 5 to be constructed. The issue is ensuring that there is sufficient gas to support the project: "Yes, if we can find the gas," he said.
When asked if he felt that a fifth train should be constructed, he said, "If you are talking about Train 5, it will be dependent on a significant gas reserve. I think what you are seeing in Trinidad generally is more exploration and appraisal activity and I am confident that Trinidad and Tobago has a proven hydrocarbon basin."
He concluded, "I look at it quite simply, the more wells you sink in the ground, ultimately the more gas you will find."
