U.S. LNG Export Potential Gaining Momentum, Goldman Sachs Says

Liquefied natural gas exports from the U.S. are looking more likely after the Freeport LNG terminal got conditional approval from the Department of Energy, Goldman Sachs Group Inc. (GS) said.

Freeport LNG Development LP’s project in Texas was the second facility to receive approval from the Energy Department to send gas to countries that don’t have free-trade agreements with the U.S. The terminal would be able to export 1.4 billion cubic feet a day. The development, partly owned by ConocoPhillips (COP), Dow Chemical Co. (DOW) and Osaka Gas Co. (9532), still needs approval from the Federal Energy Regulatory Commission.

“These recent developments support our view that at least 6.8 billion cubic feet a day of liquefaction of capacity will be built in the U.S.,” Goldman Sachs analysts led by London-based Samantha Dart said in a report e-mailed today.

The market doesn’t need more than 7.7 billion cubic feet a day of U.S. LNG for the next decade based on the bank’s demand forecasts, according to the note. Gas prices at the Henry Hub in Erath, Louisiana, need to stay at or below $5.10 per million British thermal units to keep U.S. LNG competitive in Europe, Goldman Sachs said.

The contract for June delivery rose as much as 0.4 percent to $4.108 per million Btu in electronic trading today on the New York Mercantile Exchange. Futures rose 0.9 percent to close at $4.09 yesterday.

“Assuming a normalized oil price of $100 a barrel, U.S. gas would likely be cheaper than oil-indexed contracted deliveries in Asia for Henry Hub prices at $6.60 per million Btu,” Dart said.

Cheniere Energy

The U.S. conditionally approved Cheniere Energy Inc.’s (LNG) Sabine Pass LNG Terminal in Louisiana in May 2011 for exports of as much as 2.2 billion cubic feet a day. The government has weighed 20 applications for export terminals in recent months, which could ship the equivalent of 41 percent of U.S. total production this year, Energy Department data show.

The U.S. may export 6.5 billion to 8.5 billion cubic feet a day of gas by 2020, Adam Longson, an analyst at Morgan Stanley (MS) in New York, said in an e-mailed report yesterday.

The Energy Department “will only need to approve two more projects by early- to mid-2016 in order for U.S. LNG exports to reach the low end of our estimates,” Longson said.

Henry Hub gas prices will average $3.80 per million Btu this year, higher than the previous estimate of $3.52, the Energy Information Administration said May 7 in its monthly Short-Term Energy Outlook. The average may slump to $3.77 in the third quarter before climbing to $3.92 during the final three months of the year.

To contact the reporter on this story: Chou Hui Hong in Singapore at chong43@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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