By Adrienne Blume and Stephany Romanow
Process Editor and
Editor, Hydrocarbon Processing
HOUSTON -- Deloitte executives and advisors held a press
briefing Tuesday for the release of a new report on
liquefied natural gas (LNG) exports from the US. The report,
Exporting the American Renaissance: Global impacts of LNG
exports from the United States, presents possible
scenarios on the impact of US LNG exports on the global gas
market and pricing.
Impact scenarios for US
LNG exports. According to the report, there will be
"winners" and "losers" in the global natural
gas market. Deloitte conducted a two-case evaluation using
its World Gas Model, in which the US would export 6 billion
cubic feet per day (Bcfd) of LNG
from 2016 (see Fig. 1). The majority of these
exports would be fueled by US shale gas
production, which has grown rapidly over the last several
One scenario examines the
changes that could arise from exports to Europe (3 Bcfd each to
the UK and Spain), and another scenario looks at the potential
market movements associated with exports to Asia (2 Bcfd each
to Japan, South Korea and India).
The report presents a number of findings:
-- US LNG
exports could facilitate the transition away from oil-priced
indexation of gas supply contracts
are forecast to decrease significantly in regions and countries
that import LNG from the US; however, prices will only
marginally increase in the US
-- US LNG
exports would narrow price differentials between US and export
markets; thus, the volume of economically viable LNG exports
would be limited by the market
-- US LNG
exports would provide economic benefits for gas-importing
-- Gas-exporting countries would suffer a
decline in trade revenues
-- US LNG
exports could displace a portion of oil consumption through
increased gas-fired power generation.
An expensive entry-level business. Presently, LNG
comprises 9% (around 40 Bcfd) of the global gas market. Over
the next 20 years, LNG exports are estimated to increase by 20
Bcfd to 60 Bcfd; likewise, the global gas market will nearly
double over the same period. Those nations with excess natural
gas reserves, such as the US, Australia and Russia, will
have revenue-generating opportunities.
There will be many changes in
the global gas market, even in a scenario where LNG
exports from the US do not materialize (see Fig.
2). Global LNG production is forecast to double over
the next 20 years, regardless of the US' involvement in the LNG
market. As global LNG supplies grow, the countries with the
highest demand will set prices for the market. According to the
report, the landed price of LNG in Japan for much of 2012 was
around $15/MMBtu, or five times higher than Henry Hub gas
prices in the US.
US LNG exports could also offset
some trade revenues and gas export volumes from gas-exporting
countries. However, even with exports of 6 Bcfd, the US will
only displace around 1 Bcfd of Australia's LNG exports. The
Pacific country, which is set to overtake Qatar as the world's
largest LNG exporter over the near term, could be producing as
much as 25 Bcfd of gas by 2030, according to Deloitte. Qatar
presently produces around 10 Bcfd of LNG.
US LNG exports and gas pricing. According to Deloitte
Gas Market Leader Tom Choi, the impact on US gas prices
from domestic LNG exports will be minimal, with a projected maximum increase of
$0.15/million Btu (MMBtu), since the US has a large resource
base. However, prices in LNG-importing regions with smaller
resource bases, such as Western Europe and Asia, will decrease
significantly. The margin between the US and other markets will
shrink over time as gas prices increase and become more
The report also discusses
possible evolution in pricing mechanisms. Some exporters will
continue to price gas supplies based on the oil price index.
High crude oil prices support high LNG prices. However, this
could cause exporters to lose market share as new supplies come
online and as gas price competition increases.
Oil-based pricing contracts will
come under pressure as producers seek to maintain oil price
indexation and importers seek competitively priced supplies. US
LNG is inexpensive, which may eventually help to erode oil
price indexation. Mr. Choi asserted that the market is
generally transitioning toward a more competitive price regime,
especially since US LNG sold to buyers in the Asia-Pacific
region is not indexed to oil prices. New US LNG supplies are
widely expected to be indexed to Henry Hub gas prices rather
than to crude oil benchmarks.
Positive outlook for US LNG. Deloitte forecasts a
positive overall outlook for the impacts of US LNG exports on
the global gas market and pricing. These exports will
strengthen trading relationships between the US and
LNG-importing nations with which the country has positive
relationships, especially in the OECD.
Deloitte has been invited to
present its reportthe third in a series of studies on the
impacts of US LNG
exportsto the US Energy Information Administration (EIA).
For more information, please visit www.deloitte.com.