Let me provide a little historic context on LNG.
In my former life, when I was the chief economist of an investment bank, we were involved in a proposal to finance an LNG terminal in Quebec City that would be supplied by Russian gas. That might have been seven or eight years ago.
But just as water does not flow uphill, natural gas does not go from places where it gets $11 per million cubic feet, to places where it gets $4 per million cubic feet. In other words, the whole gas equation has turned on its head. Seven or eight years ago, North America was thinking about being importers of LNG, and now we are exporters of LNG.
Why are we exporters of LNG? The price differentials that I discussed about oil are absolutely dwarfed by the price differentials in natural gas. The reason is that oil, if you can get to an ocean, is a global market. You can move oil all around the world. Gas is a regional market. LNG is a very small percentage of the gas trade.
What has changed? Well, gas is now $4 per million cubic feet—it used to be $9—because of the shale revolution. I mentioned I was at this Williston conference in North Dakota. Well, North Dakota isn't the only place. There's the Marcellus formation, Eagle Ford—a huge advent of shale. There's a shale play in B.C. as well, in the Horn basin.
The cost of gas has come down to $4. It seems on the face of it that there are enormous export opportunities to arbitrage here. Gas is $13 or $14 in Tokyo. The question is whether gas really costs $4 in North America. That's a very interesting question. If you look at the financial performance of some of the largest shale gas producers, like Chesapeake Energy, which almost went chapter 11 last year, does that suggest that perhaps the cost curve is not there?
The point is, are we going to continue to see those huge price differentials? North America is not the only place that has shale gas. If the shale technology, hydraulic fracking, is used in other places, then presumably the price of gas will decline in those places as dramatically as it has in North America and there won't be these arbitrage opportunities.