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Dominion applies for LNG re-exports due to high prices

High liquefied natural gas (LNG) prices are forcing Dominion to seek re-export permission at its little-used Cove Point import terminal in Maryland, US

LNG imports have been low because US gas prices have stubbornly stayed in the $4/million British thermal unit (Btu) range, while European LNG prices float around $8/million Btu and northeast Asian LNG prices have jumped to $15/million Btu in the aftermath of the Japanese earthquake.

But LNG import terminals have to be kept cold, and to cool the storage tanks at its Cove Point facility, Dominion was forced to buy a cargo from Shell at European LNG prices with the boils off gas put into the pipeline and sold by Statoil into the US gas market.

Since cooling the tanks is an operational cost, the difference between the purchased price and sale price will be charged to the capacity holders Shell, Statoil, and BP, according to Dominion.

The cool down cargo is expected in mid-August and is the first vessel to arrive at the 1.8 billion cubic feet a day (cf/d) terminal since February.

"We are working with our capacity holders on ways to keep the facilities cold. That is why we applied for re-export permission," Dominion spokesman Dan Donovan said.  

If Dominion is granted re-export approval, it will join the Sabine Pass, Freeport, and Cameron terminals. It is seeking blanket authority from the Department of Energy (DOE) to re-export foreign-sourced LNG up to a cumulative total of 150 billion cf (3.2 million tonnes) over a two-year period.

This application is not to export domestically produced gas, said Dominion, although in January it said it was considering turning Cove Point into an export terminal in future.

North American gas prices have been flat for more than two years, as the country’s shale-gas production has ramped up. The rapid growth of unconventional output has shifted the US from ranks of the world’s largest LNG importers to a potential exporter. Billions of dollars of LNG-import facilities are idle, with imports continuing to fall.

Lowest imports for two years

From January to July 2011, the US imported 262.57 billion cf of LNG, compared with 329.66 billion cf in the same period last year, according to data from Pan EurAsian. And the consultancy expects total 2011 imports to be the lowest in two years, dropping to 410 billion cf, from 485.22 billion last year and 457.02 billion cf in 2009.

The US has been re-exporting cargoes in recent months to cut losses from rising global LNG prices. Although it did not re-export any volumes in June, around 7 billion cf was shipped out of the country in May and 6 billion in April.

Although Dominion is paying a premium for the August spot cargo, US importers purchase LNG under a range of different contracts. In June, prices ranged from spot cargoes of over $12/million Btu to around $4/million Btu paid under long-term supply deals, according to the DOE.

If Dominion is granted permission to re-export, traders will be able to take re-export cargoes from Cove Point to the lucrative Asian LNG market, with some players are already playing the price spread between the Atlantic and Pacific basin markets.

- NOTE: The story has been updated to clarify which companies bear the cost of buying LNG and selling the gas on the US market.

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