Russia-China Gas Deals Could Kill American LNG Exports

wolfstreet.com / By Kurt Cobb, Oilprice.com / November 19, 2014

Russia and China have signed two large natural gas deals in the last six months as Russia turns its attention to China, in reaction to sanctions and souring relations with Europe, currently Russia’s largest energy export market.

But the move has implications beyond Europe. In the department of everything is connected, U.S. natural gas producers may be seeing their dream of substantial liquefied natural gas (LNG) exports suffer fatal injury because of Russian exports to the Chinese market, a market that was expected to be the largest and most profitable for LNG exporters. Petroleum geologist and consultant Art Berman–who has been consistently skeptical of the viability of U.S. LNG exports–communicated in an email that Russian supply will force the price of LNG delivered to Asia down to between $10 and $11, too low for American LNG exports to be profitable.

Now, let’s back up a little. U.S. natural gas producers have been trying to sell the story of an American energy renaissance based on growing domestically produced gas supplies from deep shale deposits–now being exploited through a new form of hydraulic fracturing called high-volume slick-water hydraulic fracturing.

Related: APEC 2014: Russia Tries To Leave Europe Behind

The problem has been that overproduction and low prices–now only a fraction of the $13 per thousand cubic feet (mcf) at the peak in 2008–have undermined the financial stability of the natural gas drillers. Here’s why: Natural gas from shale, referred to as shale gas, is generally more expensive to produce than conventional natural gas and will require that natural gas prices go much higher than they are today–from around $4 per mcf almost certainly to over $6 per mcf and perhaps more to pay the costs of bringing that gas out profitably.

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