Understanding the Role of Liquefied Natural Gas; Part 3
Posted: March 4, 2012
What is the Future of LNG in the US?
There are currently nine LNG import terminals in the US plus four offshore terminals. While the US has predominately been an LNG importer, one existing LNG export terminal is located in Kenai, Alaska. As mentioned above, LNG from this facility is primarily being exported to Japan with further supplies to other Asian markets under consideration.
Currently two applications are before FERC to convert existing LNG import facilities in the US to export facilities. An additional three facilities in the US have been identified by project sponsors as potential export sites. In addition, there are three sites on the west coast of Canada that are listed as proposed or potential locations for LNG export terminals. Total export capacity of proposed and potential sites in North America exceeds 10 Bcf per day. The process of building export terminals and securing long-term delivery contracts could take the better part of a decade. A new liquefaction and export terminal is estimated to carry a price tag in excess of $5 billion.
What are the impacts of increased LNG exports?
The question of exporting LNG raises important public policy issues. MIT’s ‘Future of Natural Gas’ study (2011) makes a strong case for the US to engage in the world LNG market as an exporter. They argue that doing so would help stabilize world energy markets which would have global social and political benefits for the United States. Exporting LNG would also help balance the U.S. trade deficit and could serve the public interest through the open exchange of goods.
Others, including T. Boone Pickens, argue that it makes little sense for the US to export cheap, clean-burning, domestic natural gas and then import more expensive, ‘dirtier’, foreign oil. Additional concerns center around the impact of LNG exports on domestic price. With increased LNG exports, US consumers may end up paying higher prices for natural gas and electricity. Higher domestic prices would also impact the competitiveness of US businesses and industries.
Estimates of the impact of LNG exports on domestic price are varied. Deloitte MarketPoint recently released a report suggesting the impact of exporting 6 Bcf per day would be negligible – about 1.7% or roughly $0.12 per mcf. While the US DOE estimated that exports of 2.2 Bcf per day from the Sabine Pass terminal would raise natural gas prices in the US by 10%. Part of the key to determining price impact is whether increased export demand can be anticipated, allowing domestic producers and midstream operators to bring more supplies online.
On January 19, the US EIA released a report on how increased LNG exports could affect domestic markets. In this report, EIA examined domestic price changes under four different export scenarios (from ‘low/slow’ to ‘high/rapid’). In all scenarios EIA studied, increased natural gas exports lead to increased natural gas prices. Larger export levels lead to larger domestic price increases, while rapid increases in export levels lead to large initial price increases that moderate somewhat in a few years. Slower increases in export levels lead to more gradual price increases.
EIA further determined that natural gas markets in the United States would balance in response to increased natural gas exports, largely through increased natural gas production. Increased natural gas production satisfies about 60 to 70 percent of the increase in LNG exports. Across most scenarios studied, about three-quarters of the anticipated increase in production is from shale sources.