US prices won’t jump due to LNG exports

Experts predict domestic consumer prices not likely to rise much, say country has plenty of gas, price gap with Asia could narrow

Larry Persily

Federal Coordinator Office of the Federal Coordinator

U.S. natural gas exports are unlikely to raise prices much for domestic consumers, a couple of gas market experts agreed during a June 25 presentation. The country has plenty of gas to handle the load.

They also concurred that the gap between the high-priced Asian market for liquefied natural gas and the low-priced North American gas market could narrow over time, probably more from U.S. prices rising to cover development and production costs than Asian prices falling.

“I don’t think you’ll ever see a global gas price,” said Tom Choi, natural gas market leader for Deloitte MarketPoint LLC, one of two speakers at the presentation in a U.S. Capitol meeting room sponsored by the United States Energy Association. North America, Asia and Europe each has its own market conditions and alternative fuels to natural gas that affect pricing.

Same answer from Charles Ebinger, director of the energy security initiative at The Brookings Institution, who added he expects global LNG sales to Asia will continue at oil-linked prices “as long as producers can get away with it.” Selling LNG based on the Btu-equivalent price of oil means natural gas delivered by tanker to Japan is two to five times more expensive than pipeline gas deliveries elsewhere in the world.

Much of the reason for those higher LNG prices, however, is the multibillion-dollar cost of building the complex facilities that supercool the gas into a liquid for tanker transport.

“The biggest problem with LNG ... those plants are expensive to build,” Ebinger said, adding that lenders require signed contracts for most of a plant’s output before they will hand over money for construction.

A couple of big unknowns in the global LNG trade, he said, are China as a buyer and Russia as a supplier. “The wild card is China,” whether it can develop its own shale gas resources rather than relying so much on LNG deliveries, Ebinger said.

And there is the “distinct possibility” that Russian LNG exports will grow substantially, especially from its Arctic resources, he added.

Prices expected to rise

Deloitte forecasts prices could average $6 to $7 per thousand cubic feet during the 2020s (in 2011 dollars), Choi said, assuming demand continues to build for electrical generation and other industries. That would be more than double today’s price. Gas producers need that higher price to pay for their investments, he said, adding that the low-cost “sweet spots” in U.S. gas plays are gone and higher prices are necessary if the country is going to get the gas it needs.

No doubt the gas is there, Ebinger said. U.S. consumers could get 60 percent of their gas from shale formations by 2014, he predicted.

A report this year from The Brookings Institution concluded that U.S. LNG exports are feasible, with only a minimal effect on prices to U.S. consumers.

Deloitte came to the same conclusion of minimal price impact in its own report last year, “Made in America: The economic impact of LNG exports from the United States.” The effect on U.S. prices could range from a dime to a quarter more per thousand cubic feet of gas, the Deloitte report said. All indications are ... that they (producers) will be able to keep pace with domestic needs and also LNG exports, Choi said.

The federal government has given permission to only one developer of a proposed U.S. LNG export facility, with several applications on hold pending further Department of Energy review of the economic effects of sending natural gas out of the country.

Ebinger said Brookings — a Washington, D.C.-based public policy think tank — is not a fan of the government picking winners in that race. “We don’t believe the U.S. government should either promote or inhibit LNG exports.” Applications should be approved on a first-in, first-out basis. As for how many U.S. export terminals really are needed, he said, “The markets will take care of these concerns.”

Editor’s note: This is a reprint from the Office of the Federal Coordinator, Alaska Natural Gas Transportation Projects, online at www.arcticgas.gov/us-natural-gas-prices-lng-exports-experts-predict.