Here’s Why China Might Not Buy LNG From America

News came out last week that a few major oil and gas players – ConocoPhillips (NYSE:COP), British Petroleum (NYSE:BP), Exxon Mobil (NYSE:XOM), and pipeline operator TransCanada (NYSE:TRP) — were ready to move forward with a massive project in Alaska. The project, a proposed pipeline from the North Slope to south-central Alaska, would cost between $45 and $65 billion dollars and ship liquefied natural gas to port for sale to Asia. However, a report from Bloomberg suggests that LNG gas projects all over the energy market may be jeopardized.

According to the report, customs data show it is cheaper for China to have gas piped from Turkmenistan than to import LNG. Turkmenistan is able to pipe gas at an average of $547 per ton, while LNG averages $562 per ton. China accounts for almost a quarter of Asia’s total gas use, spending $10.6 billion this year through August.

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“We don’t think LNG will grow to be as big as many people are thinking. LNG prices are still high to compete in China. Piped gas imports are way bigger,” said Simon Powell, head of Asian oil and gas research at CLSA, to Bloomberg.

Natural gas has gotten huge thumbs up for domestic use in the United States. General Electric (NYSE:GE) and Peake Fuel Solutions – affiliated with Chesapeake Energy (NYSE:CHK) — recently announced a compressed natural gas fueling system that will go a long way toward making natural gas vehicles more ubiquitous. Nearly half of state governments are pushing to convert their vehicle fleets for natural gas use. Energy companies are using more gas and less coal and to boot regulation has made it difficult for LNG exports.

Qatar’s Golden Pass Products – a joint venture between Exxon Mobil and state-run Qatar Petroleum International – recently made headlines by winning regulatory approvals for a $10 billion export project. The project was launched on the assumption that the U.S. would have high demand for LNG, but domestic production actually fell 17 percent between 2006 and 2011. Shale gas has made U.S. gas prices so low that exports are what’s looking good.

Still, shipping comes with high overhead. If China can reliably get pipeline gas from Turkmenistan, or from the nearly $100 billion in proposed LNG operations in Australia, then any U.S. gas exports will have to look for a new market.

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