The recent clarifications by the US government on the application process for LNG exports permits

brings this important topic to the forefront of energy analysis.

The large discrepancy in price between the US and the rest of the world for natural gas has prompted

in recent years a strong interest in developing export facilities that could take advantage of the global

price differential. The process from idea to full implementation is a long hard road as energy companies

need to deal with the technological issues related to transporting gas, the political debate over national

resources and the complex cost structure.

Nevertheless, many companies have started applying for permits and a few names such as Cheniere

Energy are further along the process in terms of terminal constructions and contract negotiations.

In summary there are about 30 LNG export projects that have been announced even though it is

reasonable to expect only a fraction of those to actually reach completion. This is due to a number of

factors but mostly financing and cost efficiency will probably dictate which ones will eventually survive.

LNG exports do try to arbitrage the significant price discrepancy especially between the US and Asia

but it should be remembered that when all the costs are added (liquefaction, transportation, seller’s

premium) the margin is considerably smaller than on a gross basis.

Japan and South Korea account for the large majority of global LNG demand; these two countries face

massive geographical obstacles and because of this rely largely on LNG imports. Japan has also increased its dependency on LNG after the Fukushima nuclear disaster. For Japan and South Korea, price relief is amajor element but also dependability of supply. Australia has been actively engaged in providing LNG to

this two countries due to its advantageous geographical position. For instance, Japan paid in 2014 $17

per million BTU for its LNG imports from the Middle East and only $14.98 for imports from Australia. US

exports could shave an additional $2 per million BTU off the premium gas commands in Asia.

In terms of US LNG supply, besides the generally low cost of the commodity domestically, there is

another advantage for potential exporters: most export facilities are being built off existing import

terminals therefore producing savings of up to 50% according to the BG Group, the global energy

company.

As of this writing the US Department of Energy has approved a total of 10.9 billion cubic feet per day of

export capacity for unrestricted shipments.