LNG Exports Price Impact: Size Matters
Los Angeles, California, March 2, 2012 – “The price impact of LNG exports is determined by how big and how fast they grow,” stated Dr. Robert Brooks. “Using RBAC’s GPCM® model, we ran five different scenarios with export volumes from 0 to 6 bcf/day, all originating from LNG export terminals along the Gulf Coast. We found that the average impact on price at the Henry Hub varied from $0.13 for 1 bcf/day to $1.33 for the extreme 6 bcf/day case.”
At 100% utilization Cheniere’s proposed 14 million tons per year Sabine Pass liquefaction project would require almost 2 bcf/day from nearby gas fields in Louisiana and Texas. “In our study, we found a $0.32 impact for that level of exports, quite close to Cheniere’s estimate of a 10% price rise at Henry Hub” said Dr. Brooks.
The 6 bcf/day extreme case impact ($1.33) is much higher than recent forecasts reported by EIA ($0.60) or by Deloitte ($0.22). Explained Dr. Brooks: “Given that the industry is de-gearing away from dry gas due to prices in the sub-$3 range, it is unreasonable to expect it to increase production enough between 2016 and 2018 to export 6 bcf/day without a substantial increase in price.”
Brooks also detailed sources of uncertainty in all of these scenarios. “New gas-fired electricity generation to replace retired or shut-down coal-fired plants, a growing natural gas vehicle market, and growth in industrial demand: will the upstream industry be able to respond to all that growth in addition to LNG exports? It’s not a matter of a sufficient resource base,” said Brooks. “There is abundant resource available for all of these needs.”
“The question is to what extent and how quickly will an industry now focused on higher priced oil and natural gas liquids shift investment back to lower-profitability dryer gas plays needed for LNG exports?” RBAC’s Scott McKenna points to one recent industry signal. “Talisman has suggested that a price of $4.00 would allow it to return to double-digit rig count in the Marcellus shale play.”
What about uncertainties in the global LNG market? While anti-nuclear policies in Japan, Germany, and elsewhere are increasing demand for clean-burning LNG for power generation, large new liquefaction facilities in Australia are scheduled to come on-line in the latter half of this decade. “The big question is how much of this market will LNG producers in North America be able to capture? And in the longer run, how much of an effect will development of China’s vast shale reserves have on the LNG market?”
RBAC Inc. is a leader in the development of energy market models, most notably the GPCM® Natural Gas Market Forecasting System. Dr. Brooks has over 30 years of experience in modeling energy markets, specializing in natural gas and LNG. GPCM is used by 30 of the largest and most important energy companies and consultancies in the industry.
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