Freeport LNG, located about an hour south of Houston, is getting set for what will be the first re-export of liquified natural gas from the U.S., according to Houston-based Waterborne Energy.
“Macquarie, which holds a throughput agreement at Freeport LNG has issued a tender for the sale of 1.8 bcf of LNG under the terms of the newly approved re-export guidelines at the terminal,” Waterborne wrote in a research note last week. “Intelligence indicates that there has been substantial interest in this cargo from market participants. Bids are due by November 13th.”
Freeport is one of a handful of new LNG terminals either completed or started in recent years in response to concerns earlier this decade that the nation would run out of natural gas. Things have changed a bit since then with the surge in drilling and production activity in shale formations.
Both Freeport and Cheniere Energy’s Sabine Pass terminal weregranted export licences this year.
Re-exporting LNG from a terminal is nothing new, accordign to Waterborne. It has been done quite a bit in Spain earlier this decade so Spanish utilities could…
“… better manage inventory, at times when natural gas sendout from one receiving terminal was significantly higher or lower than sendout from another. The Iberian Peninsula’s pipeline system not yet being up to the task, the gas was transported in the form of LNG from where it was not needed to where it was.”
But the rationale behind the “backloading” that Freeport is considering is purely commercial.
“When gas price arbitrages can be exploited by moving LNG from a low price market to a high price market, reloading cargoes makes economic sense.
In the case of Freeport, the economics are fairly straightforward. If there is sufficient LNG in the terminal’s shore tanks for a cargo, a pricing spread sufficient to meet the logistical costs are sought. Today that LNG represents natural gas valued around US$4.25/mmbtu against December sales. The cost of reloading the cargo back on to a ship might total $0.25/mmbtu. The cost of shipping will depend upon the most attractive market outlet. Today for a spot cargo that is probably Asia. If one assumes a notional US$6.75/mmbtu sale price into that market, there is a US$2.25/mmbtu spread between FOB cost and DES sale.”