The Diseconomics of Long-Haul LNG Trading by Thomas R. Stauffer

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Long-haul liquefied natural gas (LNG) exports yield little or no economic rent. Trades, such as Borneo to Japan, are economical, but government ta... (More) Long-haul liquefied natural gas (LNG) exports yield little or no economic rent. Trades, such as Borneo to Japan, are economical, but government takes otherwise are minimal. Today, the price of LNG is capped by the technical option of modifying gas turbines to burn liquid fuels. The maximum premium for LNG is less than 50 cents per thousand cubic feet (/Mcf), and buyers are resisting any price above oil parity. Costs of LNG are high and increase with distance. The netback value is zero or even negative for the longer-distance trades. The value of extracted co-products (natural gas liquids) is 50 cents to $1/Mcf. These credits are the principal source of profit, especially for foreign partners because natural gas liquids are taxed at low “industrial” rates. Returns are even less when the gas supply is nonassociated so that the project must “pay” the production costs as well. Some exporting countries profit, but the Organization of the Petroleum Exporting Countries as a whole loses because low-revenue LNG energy displaces at the margin fully taxed oil. (This paper by Thomas R. Stauffer, “The Diseconomics of Long-Haul LNG Trading,” was published as Occasional Paper 26. Boulder, Colorado: The International Research Center for Energy and Economic Development, 1996. ISBN 0-918714-49-4 and also as an article in The Journal of Energy and Development, vol. 20, no.2). (Less)