Ten major natural gas export terminal projects are sparking a debate over the complicated balance between low domestic prices and the health of natural gas producers facing contracting returns on their investment in new production.
Would US exports of liquefied natural gas support an industry that’s struggling to produce the fuel at record-low prices, or would they deprive gas users of the benefits of those super-low rates?
That’s the debate over plans to build 10 major export terminals that would help reduce the current surplus from America’s shale-gas boom while winning customers in overseas markets where prices are higher, in part because their own shale-gas industries haven’t yet supplied enough to keep prices down.
Exports are a tempting prospect for US gas producers confronted with a surplus that may be as much as 10 billion cubic feet a day, thanks to the super-productive combination of hydraulic fracturing and horizontal drilling that have given access to rich gas fields across the country that used to be economically off-limits.
Cheniere is First at the Pass
Among proponents of exports is Navigant, a consultancy that has worked on six of the proposed US terminals including Cheniere Energy’s Sabine Pass project in Louisiana, which won approval in April from the Federal Energy Regulatory Commission (FERC) and is likely to become the first LNG export facility in the continental U.S.
Gordon Pickering, Navigant’s director of energy, argues that, far from depriving US industry of cheap natural gas, exports would stimulate prices sufficiently to keep drillers producing, ensuring industry is supplied with gas at reasonably low prices, albeit not at the current rock-bottom levels that are already causing some production cutbacks.
But with plentiful gas driving down the price of electricity and helping to moderate inflation for many products, the prospect of any rise in prices has prompted opposition to LNG exports from some quarters.
The natural gas industry’s main trade association, America’s Natural Gas Alliance, said it’s mostly focused on stimulating demand domestically. “While we support free trade, ANGA’s emphasis is on what this clean, abundant resource can provide in power generation, for transportation, and for the industrial sector right here in America,” said spokesman Dan Whitten.
For a video of ANGA’s Chief Economist Sara Banaszak discussing the potential of natural gas with Breaking Energy, watch here.
Navigant’s Pickering predicted that Sabine plus two or three more of the currently proposed terminals will eventually become operational, exporting a total two to four billion cubic feet a day of LNG by 2020, or around 5% of current domestic consumption.
The plants that do get built are likely to come on stream by 2016-17 when coal-to-gas switching by power generators starts to taper off after the retirement of aging coal-fired plants that are unable to meet new federal clean-air standards, Pickering said.
That’s likely to push domestic prices up by a “moderate” one to eight percent as overseas markets take up some of the abundant supply, creating more attractive market for producers, he said.
But by 2035, natural gas could rise to between $4-6 per MMBtu as increased demand from exports combines with more use as a vehicle fuel, declining production, and the rising cost of environmental compliance.
Despite some support for US LNG exports, overseas demand for US gas is likely to be limited by increasing production in many countries, notably China, Australia and Qatar, all of which have major reserves of shale gas, Pickering said. As global production increases, the price differential between US and overseas shale gas will come down, he predicted.
“The role of exports and the amount of gas that’s available will help to ensure a healthy, producing industry,” he said. “There’s enough gas there, it just needs an adequate return.”