LNG pricing is becoming more transparent. While many of the details of long term contracts are commercial-in-confidence, there are some pointers that can be applied for a rough estimation. There are three main factors in the costing of LNG:
Many existing contracts in South-East Asia have been struck by linking to the price of crude oil. A disussion of this can be found here.
The cost of raw gas will vary widely depending upon composition and location. The Henry Hub Natural Gas futures contract (traded at the CME Group futures exchange) represents the price of a standardised, freely traded parcel of gas, delverable in Louisiana USA. This price makes a good starting point for price discovery of raw natural gas.
The price of natural gas in the US has been subdued in recent times due to the huge growth of the Shale Gas industry, but it represents an unfettered market and with US exports of natural gas likely in the near future, it will play an even larger role in global pricing.
One of the major delivery parameters for natural gas is its energy content. This is described by either the higher heating value (HHV) of the gas or its Wobbe Index. This parameter varies from country to country depending upon the local gas infrastructure and regulations. In Japan the HHV varies between approx 40 - 43 MJ/m3, but in the US this ranges from 36 - 40.5 MJ/m3. A delivery from a US terminal may not have sufficent thermal energy for delivery into the Japanese market, so may need to have a higher hydrocarbon injected to make up the difference.
Once we have established the cost of the raw natural gas, we need to calculate the cost of purification and liquefaction of the gas for transport. The liquefaction plants purify and refrigerate the raw natural gas to a temperature of -161.5°C, reducing the volume of the gas (liquid once refrigerated) to 1/600 its volume at STP. The cost of these plants can vary widely depending upon composition and purity of the feed gas, location of the plant and infrastructure availability. Every plant will have a different figure, varying from $500 to over $1,500 per tonne per annum capacity.
Cheniere have recently said they will sell LNG at Henry Hub plus 15%, plus $3 to liquefy the gas, plus freight. Three dollars for liquefaction seems a bit low given the huge capital investment required to build an LNG plant, but it gives a starting point for comparison. Some industry players have suggested that Cheniere is just 'putting the cat among the pigeons' here and may be using this price to sell spare capacity at some of its planned LNG trains.
Whether this is sustainable remains to be seen, particularly if long term interest rates begin to increase in the future. Cheniere have a cost advantage in that the facilities at Sabine Pass for export and storage already exist. The total capacity of all planned LNG trains at Sabine pass (4) is about 18.5 Million tonnes per annum, however initially only two will operate with first shipments expected in the 4th quarter of 2015. There is additional space and infrastructure for a further 2 LNG trains (6 in total), however they may have difficulties sourcing this amount of gas domestically.
The final leg in pricing is how much it costs to get it to your customers. Platts are the experts for providing up to date pricing on transport. Using pricing from a sample issue of Platts LNG daily report (in $USD/tonne LNG, October 2012), we can establish some indicative rates:
|Origin||To Japan||To China||To S.W. Europe|
|Sabine Pass (US)*||$2.80||$2.80||$1.00|
* Approximate cost from Cheniere figures