FT Special Report on Commodities

8/9/2019 FT Special Report on Commodities

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FINANCIAL TIMES TUESDAY JULY 17 2012 FINANCIAL TIMES TUESDAY JULY 17 2012

mmodities Commod

tributorsBlas

odities Editor

Farchy

s Reporter

ry Meyer

s Reporter

Hook

Correspondent

Terazono

Commodities Editor

Jezard

issioning Editor

n Bird

er

Wellings

e Editor

vertising details, contact:

Williams on +44 (0)20 7873

email [email protected], or

an Spain on +44 (0)20 7873

email [email protected]

r usual representative

his Issue

ing trading houses raceet in on bumper profitsLS STORAGE Warehouse wars

reated long delivery delaysfuriated consumers such asCola and PepsiCo Page 4

ee courses undertiny

QUALIFICATIONSMany currentCEOs began onthe bottom rung.

Can academictraining match

skills learnton the job?

Page 5

a experiences fallingand for ‘big coal’G FORTUNES Policy shifts ing are leading traders to ask ifory days are over for thestuff, raising concerns the

ry’s appetite for commoditieseral is waning Page 6

eighs the costs exports to

omy D NATURAL

edglings to exploit

marketsbe

ered bystic politicalrns7

Supercycle runs out of steam – for now

Citius, altius, fortius.Mirroring the offi-cial mo tt o o f t he

O lympic G a me s ,the commodities market hasbeen “faster, higher andstronger” during the pastdecade.

Never in the modern his-tory of the global economyha s t he price o f s o ma nycommodities – from oil, tome ta ls, t o a g ricult ure – risen as much and stayed ashigh for so long.

T he price incre a se ha scome to be known as thecommodities supercycle: arare period of higher costsunderpinned on the demandside by the industrialisationand urbanisation of emerg-ing co untrie s, no t ably

China, and on the supplys i de b y y ea r s o f u n de rinvestment during the 1980s

and 1990s.Only a few months ago

the supercycle looked robuste noug h t o co ntinue fo ryears, if not decades. Afterall, China may already beindustrial and urban, buto t he r co unt ries s uch a sIndia a nd Indone s ia a reready to follow its example.

But – just as with athletesfollowing their strenuouse v en t s i n t h e O l ym p icGames – the commoditiessupercycle is showing signsof fatigue. Yet it would be amistake to say it is finishedco mple t ely. R a the r, t hesupercycle is entering a lessint ens e pha se , in w hich

prices are likely to plateauat about their current ele-vated level rather than con-

t inue t o rise a nd ris e, a shappened in the previouspha se be tw e en 2002 a nd2012.

Raw material costs are,t h er e fo r e, u n li k el y t oplung e . And w it h s upplyand demand so finely bal-anced, any sudden drop inproduction caused by badweather, a strike or militaryconflict, for example, couldsend prices sharply up tofresh record highs.

The scale and duration of the commodities supercyclematters far beyond the day-to-day business of raw mate-rials markets and trading. Itdirectly affects many of the

Javier Blasconsiders the

outlook for thegrowth in pricesand asks if we areexperiencing a lullor if the end is near

world’s largest basic indus-tries, including mining com-panies such as BHP Billitonand Rio Tinto, oil and gasgroups including ExxonMo-bil and BP, and agribusinesscompanies including Deere& Co, the maker and distrib-utor of agricultural, com-m e rc i al a n d c o ns u me requipment, and Cargill, aswell as countries ranging from Saudi Arabia to Chile,w hich a re de pe ndent o nnatural resources output fortheir prosperity.

After a decade of rising prices interrupted briefly bythe global financial crisis of 2008-09, price s fo r ma nycommodities have fallenback from record highs inre cent mo nt hs. But t he yremain at a much higherlevel than before the super-cycle started a decade ago.Crude oil, for example, is

trading at roughly $100 abarrel, well below the $147 abarrel level of 2008. But itremains well above the $18.5average of the 1990s. This isthe same for many commod-ities. Iron ore is at about$135 a tonne, below the peakof almost $200 but still wellabove pre-supercycle levelsof $15-$20. And the price of ahandful of commodities ismo ving a bove pre vio ushighs because of supply dis-ruptions: soya beans, fore xample, ha ve t ra de d inJuly a t $16.73 a bushe l,above the record high theyset in July 2008 and morethan double the pre-supercy-cle levels of $7 a bushel.

S u pp l y, d e ma n d a n dprices suggest the supercy-cle will continue, but it willbe a bit less super and a bitle s s cyclica l. Price s a relikely to settle higher, withperiodic spikes around theirnew “normal” level.

The supercycle’s demiseha s be e n pro no unce d – w rong ly – be fo re. In t he2008-09 global financial cri-sis, the World Bank said itwas “best understood as yetanother cycle in a long his-t o ry o f co mmo dit y pricecycle s ”. It co mpa re d t hesurge in prices that startedin 2002, as Chinese demandfor raw materials acceler-ated and the global economyenjoyed steady growth, top a st “ b oo m a n d b u st ”

cycles, such as the one thatfollowed the 1970s’ oil crisis.

Others echoed the WorldBank’s view, dumping com-modities futures and theshares of natural resourcescompanies. Yet commoditiesrecovered sharply, suggest-ing t he fina ncial crisiswould be no more than atemporary blip, the effectso f w hich w o uld be o ut-weighed by robust demand.

Now the question tradersand analysts are debating iswhether the current drop inprices signals the real end of the cycle.

Ric Deverell, head of com-modities research at Credit

S uiss e , s umma ris e d t hevie w o f ma ny w he n heasked in a note to clientswhether the market was infront of a “cyclical dip, orthe beginning of the end”.M r De vere ll, e choing awidely held view, says – paraphrasing Noble prize-winning economist MiltonFriedma n – t hat bro adcha ng e s in “ commodit yprices are always and eve-rywhere a function of glo-bal growth”.

A s g l ob a l e c on o mi cgrowth recovers in years tocome, so will commoditiesprices. As such, the current

phase is just a pause in thes upercycle ’s co ntinuing spin.

But as China heads into asustained period of slower – a nd l es s c om mo di tyintensive – growth, inves-tors are growing worriedthat the years of double-digit percentage price gainsfor commodities across theboard are now over.

Commodities prices mayspike from time to time – asfo od ra w ma te rials a redoing right now. However,the gains will no longer besynchronised across energy,food, metals and minerals.

Slow spin: crude oil nowtrades at about $100 abarrel, well below the $147a barrel level of 2008 AFP

Supply, demandand prices suggeststhe supercycle willcontinue, but... abit less super and abit less cyclical

age illustration: MEESON

The change would meanfew opportunities for trad-ers and investors.

Long-only passive inves-tors tracking popular com-modities indices such theS&P GSCI and the DJ-UBS,w ho ha ve s imply ridde nyear-after-year price gainswithout worrying about thedifference between, say,aluminium and cocoa, areunlikely to make as muchmoney.

Equity investors will alsohave to become choosier,d i sc r i mi n at i ng m o rebetween oil explorers andcopper miners. However,

the change in vides opportuniinvestors.

Private equitylar is benefitindrought of credtake a step bacsector. The ctrading houses with their renewto expand vertithe supply chaibenefit too.

The supercydeflating a bit, s en s us i s t h as t rong g loba lgrowth may wagain.




mmodities Commod

There is a long list of execu-tives in the commoditiesw o rld w ho s t art ed t heircareers at leading resourcegroups and trading compa-nies. Among them are IanTaylor, chief executive of oil trader Vitol, who startedat Shell: Glencore boss IvanGlasenberg, who started inthe trading house’s trafficdepartment in Johannes-burg: and Marco Dunand,Mercuria co-founder, whow o rke d a t Ca rgill a fte rgraduating from the Univer-

sity of Geneva.Commodities trading has

traditionally been some-thing learnt on the job and,until the 1990s, the largecompanies took in dozens of interns and trainees a year,teaching them the basics.Many oil and energy traderslearnt their skills at BP andShell, while Cargill taughtits large trainee intake howto trade grains and otheragricultural commodities.

However, those numbersof interns have shrunk andre so urce co mpa nies a reonly taking in a handful of graduates each year. Thequestion is whether univer-s it ie s o ffe ring va rio usco urs e s in co mmo dit ie strading and trade financecan fill the gap.

Most companies say theycast their net far and widewhen recruiting, and do notlimit themselves to gradu-ates with specialist qualifi-ca tio ns in co mmo ditie s.However, technical knowl-edge adds an edge to highlymotivated candidates witha strong academic back-ground, say those who havebeen on the courses.

Cass Business School inLondon offers one-year mas-ters courses in shipping,t ra de a nd finance , a nde ne rg y, t radea nd finance ,w hile Pa risD a u p h i n e

U n i v e r s i t yha s a ma s-t e rs co urs eo n financial

markets, commodity mar-kets and risk management.

“We try to open students’minds,” s a ys PhilippeChalmin, who teaches eco-nomic history at Paris Dau-phine. In order to succeedin commodities, “you needto be flexible”, he adds.

The Singapore Manage-ment University set up itsInternational Trading Insti-t ut e in 2007, pro viding finance and commoditiest ra ding co urs e s a t t heundergraduate level as wellas for executives and pro-fessionals.

SMU’s launch of commod-ities trading courses hasbeen part of Singapore’spush to establish itself as ahub for commodities in ane ff o rt t o r i va l t h at o f Geneva. The courses add tothe available pool of talent

for the commodities trading groups, as well as for thecompanies which servicethe industry.

The University of Genevaand the Geneva Trading and Shipping Association(GTSA), which representst ra ding co mpa nies a ndbanks active in commodi-t ie s, cre at e d a ma st e r'sdegree in international trad-ing, commodity finance andshipping in 2008.

Students need to be hiredon a part-time basis by at rading ho use , s hipping company, specialised com-modity finance bank, or acommodities services com-pa ny ba s ed in t he La keGeneva region to enrol inthe 18-month course.

Geert Descheemaeker,secretary-general of theGTSA, which was set up in2006, s a ys: “ W e fe lt w ene ede d t o do s o me t hing about training young peopleto interest them to go intoour business.”

He adds that there was ane ed fo r t he indus t ry t oengage with local talent intheir 20s, who were other-wise interested in finding jobs only at the UN or ininvestment banks in Swit-zerland.

About two-thirds of thestudents on the course arefro m S w itz e rland a ndneighbouring France, whilethe rest come from as far as

China, as well as Russiaand Bulgaria.

The course distinguishesitself from other university

degrees by having t he i n du st ryfinance the train-

ing o f t he s t u-dents by mak-

ing part-timee mplo yme ntin t he co m-modities sec-

tor mandatory while theystudy. Mr Descheemaekersays 95 per cent of thosewho go through the coursestay with the companiesa nd ba nks w ho ba cke dthem.

W hen t he co urs e w a slaunched, the University of Geneva struggled to gainrecognition from both stu-dents and business, and thecourse started with 16 stu-dents in the first year. How-

ever, as word spread, therehas been a rise in applica-t ions , a nd la st ye ar, t henumber of students totalled34. Companies that havesponsored students in thepast include Cargill, Mercu-ria, Louis Dreyfus, Vitol,Trafigura, Coca-Cola, Bungea nd BNP Pa riba s, w hichhas a large commoditiestrade finance operation inGeneva.

SGS, the inspection com-

pany, and auditors Ernst &Young have also been sup-porters of students in theprogramme.

The recent downturn inthe commodities marketsand the global economicoutlook may, however, havehad an effect on the abilityof companies to offer posi-tions to students.

Eliane Palivoda Herren,programme co-ordinator forthe masters course at the

University of Gthat some of ththat have supco urs e in t hunsure about wcan hire staff coming academ

H ow ev er , Descheemaekerthe GTSA memthe importance ing their suppthe programmereally the futur

Universities provide new blood for sectoQualifications

Emiko Terazonoasks if degrees canmatch on-the-job training schemes

The stacks of metalstretching in everydirection look aliket o t he unt ra ined

ut for Charles Buck-managing director of

o using co mpa ny, each pile is judged

w efficiently it can beand moved.squat heap of darkerin the nondescript

n Sunderland, north-ngland is “lovely full-cathodes” – nickel,

is va lua ble a ndstacking 6 tonnes to

quare metre. Anotherknobbly aluminium

ed in a piece of wirerible old ingots”, hard

dle, and packing ass 3 tonnes per sq m. prosaic considera-

are bread and butterarehouse companies.ey disguise a revolu-

hat has transformeddustry from a back-of the metals world to

cow for banks andg houses.

ack demand and lowt rates spur traders

d large quantities of from aluminium to

torage has becomeously profitable. Thet na me s o n W a ll

s uch a s G o ldmanand JPMorgan, as

a s le ading t rading , have been racing to

warehousing compa-n d g e t i n o n t h e

Mr Bucknall calls thet boom the “halcyonof the warehousing

ry.r e a s on s f or t h e

n in fo rt unes a retforward. When the

economy fell intoon in 2008, demandustrial metals driedving banks and trad-mop up the surplus.ories of metal regis-on the London Metal

nge rose from justonnes at the start of

6.2m tonnes by thef 2009. T his ye a r,

ories hit 7m tonnes.increase in stocks

straight through toouses’ revenue. “Allouses are making

at the moment,” Mrall says, “but yout o ma ke mo ne y ino pay for the costs of

ng the metal in”.ging up to $0.53 per

r each tonne of metal, t he g lo ba l LM E

ousing industry couldvenues of as much ashis year, according to

figures from the LME andindustry executives.

A large share of that potis controlled by the fourle ading co mpa nies . Fo rexample, Henry Bath, a 218-year-old logistics group thatwas bought by JPMorgan in2010, s a w it s ne t pro fitssurge from just under $30min 2008 t o $114m in 2009,and $72m in 2010, according to Companies House filings.

C Steinweg, a privatelyowned storage and logistics

company in Rotterdam, hasthe largest network of LME-registered warehouses andma ke s pro fit s o f a bout$150m a year, industry exec-utives say. The other twoleaders are Pacorini of Italyand Metro International inthe US.

Fo r M r Buckna ll, t heindustry has come full cir-cle. He cofounded NEMS int he la s t g re a t indust ryboom following the collapseof the Soviet Union in the

1990s. “Russians were heav-ing aluminium out and itwas going into car parks, sow e s e t up a n LM E w a re -house,” he says.

T he curre nt w a ve ha spropelled NEMS’s expan-sion. It has shifted its focusfrom its back yard in Sun-derland – which, two centu-ries on from Britain’s indus-trial revolution, is no longera n import ant ce ntre fo rmetals demand – to Asia.

NEMS has grown “a lot”,

he s a ys . “ W e ha d s ma llwarehousing capacity inChina , no w w e ha ve t hemost extensive range of warehousing in China of everyone.”

The expansion has beenhelped following its acquisi-tion by Netherlands-basedTrafigura, the second-larg-est metals trader, in a waveof consolidation that beganin 2010. Elsewhere, Gold-man Sachs bought Metrofor almost $550m, Glencorebought Pacorini for $209m,while other banks and trad-e rs, including Ba rcla ys ,No ble G roup, a nd Lo uisDreyfus Commodities, area t te mpt ing t o e nte r t heindustry by buying smallercompanies.

“The biggest change hasbeen the rush to grab the

warehouse operations inthe past three years,” MrBucknall says.

But the change of owner-ship of about 60 per cent of the global metals warehous-ing industry in that timehas created tensions. LMErules require warehousing companies to be operated atarm’s length. But the shiftof ownership to banks andtrading companies has trig-gered a wave of “warehousewars” as each trader triesto store metal in their ownwarehouses.

The result is long queuesto take delivery of metalfrom some LME warehousesthat have created a discon-nect between LME pricesand the physical marketand infuriated metal con-sumers such as Coca-Cola,GM and PepsiCo.

M r Buckna ll co nce des“it’s terribly difficult to getmetal at the moment”. Buthe argues the queues willdisappear when the globaleconomy recovers. “Whenreal consumption comesback it will erode graduallythe queues in these criticalmass operations.”

More worrying for therecent acquirers of ware-housing companies may bethe long arm of regulators.Aluminium consumers havealready been complaining in private to regulators, saypeople familiar with the sit-

uation. Moreover, FederalR e se rve re gula tio ns intheory restrict US banksfro m o w ning physica lassets, even if banks canfind a lo ophole w he n itcomes to warehousing.

Yet bumper profits trumps uch co nce rns a s w a re -house owners enjoy theirs ucce s s. G le nco re e ve nattempted a merger of itswarehousing business withSteinweg, with talks break-ing down only over price.

As JPMorgan says: “Thefirm is not considering asale of Henry Bath. We areco mmit t ed t o t his bus i-ness.”

torage stacks up for tradersals warehouses

Farchy says a er backwater

now becomely profitable

‘The biggestchange has beenthe rush to grabthe warehouseoperations’

Total LME inventories

Sources:Bloomberg;LME;FT research

Million tonnes

2002 03 04 05 06 07 08 09 10 11 120

2

4

6

8

LME warehousing capacityNumber of warehouses

C. Steinweg (independent)

Pacorini(Glencore)

Metro (Goldman Sachs)

Henry Bath(JPMorgan)

CWT (MRI Trading)

NEMS (Trafigura) 30

Others (independent)

Others (owned by traders) 22

169

148

130

104

36

95

Showing its mettle: Charles Bucknall, NEMS managing director, says warehousing is enjoying ‘halcyon days’ NEMS

GeertDescheemaeker:

‘We felt we neededto do something

about training’David Wagni




mmodities Commod

A s trains loaded with coalchug their way from farwestern China towardthe teeming eastern sea-

their long migration acrossnds of kilometres, throughains and deserts, epitomises

s huge energy needs.energy vacuum on China’snd southern coast extendslong arm, not only to coalin the most remote cornersna , but a lso a cros s t hefrom Australia to Indone-he US.

a is the world’s biggest con-of thermal coal, which it

n power stations to fuel itsries and megacities, and the

y is a key driver for globalarkets.although China’s economyll humming a lo ng w it h

forecast above 7 per cents year, coal demand has a

gloomier story to tell.prices in Australia have

slid 30 per cent since January,partly because of slack Chinesedemand. Meanwhile all thosetrains from western China ands hips from Q uee ns la nd ha verecently been delivering their coalcargoes into ports already piledhigh with the stuff.

Last month coal inventories atQinhuangdao, a key trading port,hit levels not seen since the finan-cial crisis of 2008, although theyhave since fallen slightly.

“There is a lot of coal floating out at sea,” said Liu Jihong, aDalian-based purchasing managerfor coal trader SCM. “We stopped

importing at the end of May,” headded, citing weak coal demandbecause of a slowing economy andmore electricity being generatedby hydropower.

Behind the recent coal build-uplooms a larger question: is China’sbroader appetite for commoditieswaning in the long term? Chinahas been the engine driving theglobal commodities supercycleover the past five years, but thisyear has seen a clear slowdown inChinese demand growth acrossmany commodity classes. Whilet h e r ec e nt d i ps i n C h in e sedemand have been driven in partby the eurozone crisis and a weakUS recovery, Chinese traders saya more fundamental shift is also

a t w o rk a s China is mo ving toward a slower, less commodityintensive growth model. Some askwhether this could be the begin-ning of the end of the global com-modities supercycle.

China’s le a de rs ha ve be e nremarkably clear about what theywant this shift to look like. Lastyear Beijing set out targets for the12th five-year plan (which covers2011 to 2015), the impact of whichis now beginning to manifest

it s elf be caus e ma ny de t aile dimplementation plans for the cur-rent five-year period have onlybeen released over the past sixmonths.

Among the targets that willhave the most impact on commod-ities are Beijing’s plans to reduceenergy intensity relative to eco-nomic output by 16 per cent by2015; cut fossil fuel dependence to87 per cent of energy supply; andboost natural gas consumption to

8 per cent of energy supply, from4 per cent in 2010.

Chine s e le a de rs ha ve a ls ovowed to conduct research for apossible carbon tax or emissionstrading scheme, which wouldhave big implications for fuelssuch as coal and crude oil, andt he first pilot ca rbo n t rading schemes will start next year.

At the same time restrictions onthe property sector, which areseparate from the five-year plan,have cooled China’s constructionmarket over the past year, biting int o de ma nd fo r s t ee lmaking ingredients such as iron ore and

coking coal.W hile it w ill t a ke ye a rs fo r

Beijing to actually implement itsvis io n o f a co unt ry t hat is nolonger dependent on resourceint e ns ive, hig hly po llut ing growth, the shift will have a pro-found effect on commodities mar-kets globally. The effects will varyg re at ly be t we e n co mmo dityclasses.

Soft commodities such as cornand soybeans are expected to seecontinued demand growth, as ris-ing incomes and urbanisationmean the Chinese spend morem on ey o n m eat a ndprocessed foods.

Natural gas is also likely tobenefit as Beijing replaces coal-

fired power stations with gas-firedones, and as more Chinese carsrun on natural gas instead of pet-rol.

Analysts expect China’s gasdemand to grow by about 15 percent per year for the next fiveyears.

Other commodities, such asco al, a re s e t t o s e e lo ng-t ermde cline s in de mand g ro wt hbecause of shifting policy priori-ties. China is the world’s biggestproducer of coal by volume and isalso one of world’s top importersof thermal coal. But that couldchange. Beijing aims to reduce

re lia nce o n co a l a s a n e nerg ysource and may ultimately capcoal production too, althoughsuch a cap would be difficult toenforce.

The US-based Lawrence Berke-ley National Laboratory estimatesChina’s coal demand will peakaround 2030 because of substitu-tion from other energy sources,and that overall energy demandwill plateau around 2040.

M e anw hile co al t rade rs a reacutely aware their industry is nolonger finding favour in the eyesof Beijing’s policy planners. Asone trader for a state-owned coalcompany put it: “The glory daysof big coal are already behind us.Now we are in a sunset period.”

China’s demand for ‘big coal’ wanesng fortunes

e Hook findsy shifts are leading

ers to ask if they days are over

Beijing aims to reducereliance on coal as anenergy source and mayultimately cap coalproduction, too

e: trains from western China have been delivering coal into ports already piled high with the stuff at the same time as Beijing aims to reduce its reliance on the commodity Reuters

One molecule of natural gasis chemically the same as

a not her, but w he re it isfound has enormous impli-cations for global politics.

The price of gas in the USfollowing the shale drilling boom is now a third of thatin western Europe and afifth of that in Asia.

In another commoditymarket – such as corn or oil– merchants would seize onthese price disparities tobuy in the US and ship it tothe expensive continents.T his w o uld na rro w t heprice gap until profit mar-gins become thin, as theymainly are for internationalphysical trading houses.

W ith g a s it is no t t hatsimple. Expensive facilitiesare needed to cool the gasto -162°C so it can be putinto ocean-going tankers.But companies are now try-ing . T he ir e ffort s ha veimportant implications forUS g a s s upplies , e nerg ysecurity and prices.

As of last month, morethan a dozen applicationshad been filed to export liq-uefied natural gas (LNG)from t he co nt ig uo us USmainland. The total capac-ity of all the applications is18.7bn cu ft per day, or 28per cent of US consumption.

Propo nent s a rgue t heexport liquefaction termi-nals will help drain a mar-ket so glutted that pricesfell to a 10-year low this

year. The impact on domes-tic US prices, where gas isused for heating, cooking,generating electricity andma nufa cturing , w ill bemodest, they say.

Chemical and manufac-turing groups warn export-ing LNG is like giving awaya new-found comparativeadvantage for the US econ-omy. Some lawmakers, ana-

lysts and even hedge fundsbet the shipments will dra-matically increase prices asthey match global markets.

The US already exportsnatural gas in its naturallygaseous state via pipeline toMexico and Canada, butvolumes were only 3.93bncu ft per day last year. Thestate of Alaska also exportsa little LNG to Japan. USdry gas production totalled66.7bn cu ft per day in 2011,the most on record.

T he US De pa rtme nt o f Energy must approve eachexport project. By law, itmust find that exports tocountries with which theUS does not have free tradeagreements – the bulk of t hem – do no t ha rm t hepublic interest.

T he de part ment ma desuch a finding on the onlyapplication it has so fara ppro ved, fo r Che nie reEnergy’s 2.2bn cu ft per daySabine Pass project in Loui-siana. But a flurry of otherproposals following Sabine,which was first built as anLNG import terminal, hassaddled DoE officials with adifficult que st io n: ho wmuch gas can the US exportbefore it hurts? In its Sab-ine Pass approval, it wrote:“The cumulative impact of these export authorisationscould pose a threat to thepublic interest.”

Every other project has

since been delayed as theDoE considers this aspect.A study by its independentanalytical and statisticswing, the Energy Informa-tion Administration, foundthat, between 2015 and 2035,the LNG exports would add3 per cent to 9 per cent toconsumers gas bills andbetween 1 per cent and 3per cent to electricity bills,depending on the volumeand pace of exports.

“Larger export levels leadto larger domestic priceincrea s es , w hile ra pidincreases in export levelslead to large initial priceincreases that moderatesomewhat in a few years,”the administration said.The study examined caseso f be t we e n 6bn cu ft pe rday and 12bn cu ft per dayof exports, well below thecurrent slate of projects.

Earlier this month, LNGprices in Japan and Koreawere $14.15 per m Britishthermal units, gas in theUK was $8.634 and the USbe nchma rk w a s $2.737,a ccording t o Pla tt s , t heenergy information service.

Teri Viswanath, directorof commodity strategy atBNP Paribas, says aggres-sive exports would raiseprices and that electric util-ities would be hit hardest.Sending gas abroad wouldmean utilities burn morecoal: “US consumers will be

competing to some extentwith international consum-ers for US gas. That’s thepart that becomes difficulta nd cha lle ng ing fro m apolitical standpoint.”

After an uncontroversials t art , ne w LNG e xport shave indeed become a polit-ical battleground. Congres-sional Democrats Ed Mar-key, a Massachusetts con-gressman, and Ron Wyden,congressman from Oregon,h a ve u r ge d t h e W h it eHouse to limit gas exports.

At issue is whether theUS w a nt s t o e xport it senergy wealth in the formof an unfinished commodity

o r a s pro duct s s uch a s

petrochemicals or steel, towhich American workersha ve a dde d va lue . T hestakes are high. A Decem-be r s t udy by IHS G lo balInsight on behalf of Amer-ica’s Natural Gas Alliancefound shale gas would sig-nificantly boost economicgrowth and tax revenue,

but assumed LNG exports

would not top 2 per cent of domestic production.

Eurasia Group, a politicalrisk consultancy, says that,whoever wins the WhiteHouse in November, newLNG exports will probablyonly reach 6bn cu ft per dayby 2020 as technical, locala nd po lit ical cha lle nge s

slow the pace

development.Some energy

have taken to bterm futures as prospect of US ing w it h t he world. It is a rde pende nt nodemand for heabut on political

US weighs the cost of gas exports

to economy

US Department of Energy found exports from the Sabine Pass project in Louisiana do not harm the public interest

LNG

Political worriescould hamper plans to sell abroad, saysGregory Meyer

US natural gas

Sources:EIA;DOE

Bn cubic feet per day

0 20 40 60

Dry gas production*

Gas consumption*

Gas imports*

Gas exports by pipeline*

Pending LNG exportsfrom contiguous

US states

* 2011



8 FINANCIAL TIMES TUESDAY JULY 17 201

Documents

FT Special Report on Commodities