1. Mervin Bovaird Professor of Energy Business and Finance
US Natural Gas (LNG) Exports: Opportunities and Challenges 34th USAEE/IAEE North American Conference October 23-26, 2016 Tulsa. Oklahoma
Ronald D. Ripple, PhD
Mervin Bovaird Professor of Energy Business and Finance

2. Outline Misnomers about USA LNG Global natural gas imbalances
US Lower-48 LNG export applications and approvals
Cheniere business model
International prices
Shipping costs
Full cost recovery versus Marginal cost recovery
Implications

3. LNG Misnomers in the media
LNG market AND natural gas market
We are exporting shale gas
There is a market for natural gas; there is not really a market for LNG
LNG is only a transportation phase for natural gas to be moved from one location to another over water.
LNG is always regasified for use of any sort; it is never used in its cryogenic liquid form.
What we are exporting is NOT shale gas

4. Source: BP Outlook 2016; author calculations
Source: BP Outlook 2016; author calculations. To convert to Bcf/d multiply by 48 and divide by 365. For example, the 2020 shortfall for Asia Pacific is equivalent to 16.7 Bcf/d.

7. Cheniere Business Model
Cost-plus in nature
Henry Hub plus 15% for sourcing the gas
Cheniere acquires and owns all the gas to be processed, so theirs is NOT a tolling operation
A processing cost is factored in before delivery to ship side
This is a take-or-pay fee, so it is effectively a fixed cost to the off-taker
Buyers take possession, and ownership changes hands, at dock side
Shipping and further handling costs are borne by the buyer

9. Cheniere Sabine Pass exports
Exporting since February, 2016
Through July:
21 shipments
9 different countries
Average send out of approximately 423 MMcf/d
Prices (at export point) range from $3.12/MMBtu to $5.60/MMBtu

10. Low day rate
High day rate

11. International prices As of Thursday, October 20
UK – NPB -- $5.87/MMBtu
Europe – TTF -- $5.44/MMBtu
The latest data for Japan (from METI) for LNG delivered in September -- $5.70/MMBtu

12. Netback values Full-cost recovery: Marginal-cost recovery/shutdown:
UK -- $5.87 – 0.46 – 5.84 = -$0.43
Europe -- $5.44 – 0.46 – 5.84 = -$0.86
Japan -- $5.70 – 0.96 – 5.84 = -$0.60
Marginal-cost recovery/shutdown:
UK -- $5.87 – 3.59 = $2.28
Europe -- $5.44 – 3.59 = $1.85
Japan -- $5.70 – 3.59 = $2.11

13. Implications Significant market opportunity Price will matter
Full-cost recovery may be a challenge
No shutdown in sight for those facilities under construction AND take-or-pay contracts in place
No economic incentive to build more capacity that does not carry take-or-pay for the liquefier

14. Thank you! R. D. Ripple www.utulsa.edu
Q & A
Thank you! R. D. Ripple