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Study says US LNG exports feasible Brookings Institution study finds that there should be enough L48 natural gas to export some as LNG to the benefit of the US Alan Bailey Petroleum News
A year-long study by the Brookings Institution, a non-partisan public policy organization, has found that the export of at least some LNG from the United States is likely to be both feasible and in the country’s best interests. The study, which focused on the export of LNG from the Lower 48 states rather than from Alaska, found that although the export of LNG would likely somewhat increase natural gas prices in the United States, the economic benefits derived from the exports would more than offset any negative impacts from the higher cost of gas for U.S. consumers.
And the study authors cautioned against government interference in the LNG market, saying that this type of interference would likely cause undesirable, unintended consequences as a result of, in effect, subsidizing U.S. gas consumers at the expense of gas producers.
To inform its research the institution assembled a task force of 17 experts from consulting firms and academia.
Shale gas The starting point for the study report is the rapid growth in shale gas production in the United States. This production growth is creating a situation where the country has an excess of gas supply over internal gas demand, thus potentially creating a source of gas to export into international LNG markets.
Experts in the gas industry say that evolving shale gas technologies are overcoming problems with the sustainability of production from shale gas plays, although questions over the environmental impacts of shale gas development are still causing concern and some uncertainty. And there are some significant issues associated with the shortage of sufficient pipeline and storage capacity to handle elevated levels of gas production, and hence to ship gas to future LNG facilities, the study says. The availability of people and equipment for shale gas drilling is also tight.
On the gas demand side of the situation, the study authors say that most internal U.S. gas demand will come from power generation and industrial gas usage, with the U.S. demand for gas in transportation and in the commercial and residential sectors likely to be quite modest.
Taking into account the various U.S. supply and demand factors, together with the associated uncertainties, the increased export of gas as LNG from the United States does appear technically feasible, the study has found.
Global market But what about the global gas market into which the LNG would need to be sold?
In what the study refers to as the Pacific basin, the region including the countries of southeast and east Asia, growing gas demand, limited local supplies and high, rigid gas prices linked to oil prices provide the United States with a near-to-medium term gas export opportunity, the study says. There are, however, uncertainties relating to the possibility of indigenous shale gas development in, say, China or India. Expanded LNG exports from Alaska and new LNG supplies from Canada could also compete with LNG from the U.S. Gulf coast, the study says.
The study says that the transportation cost of LNG from Alaska to the Pacific Rim could be higher or lower than from the Gulf of Mexico, depending on the scale of Alaska LNG production.
In the Atlantic basin U.S. LNG would be competing with piped gas, especially from Russia, and with global LNG in a market where European countries have been pushing for gas prices lower than the traditional oil-indexed levels.
U.S. prices Several studies, including a study by the Energy Information Agency, have investigated the potential impact of exporting LNG on domestic U.S. gas prices. All of these studies have concluded that the linkage of the U.S. gas market to the global LNG market would push up gas prices in the U.S., but there is a very wide range in the estimates of the scale of the price impact. A comparison of the assumptions behind these various studies suggests that, taking into account for example constraints on the realistic scale of LNG export facilities, the price impact would be fairly modest, the study concluded. And constraints on export volumes resulting from the relatively stable capacity of the export facilities would dampen any price volatility.
In addition to providing a valuable export, thus lowering the U.S. trade deficit, the overseas sale of LNG would provide a market for surplus “dry” natural gas, large volumes of which are currently being flared as companies push ahead with the production of valuable natural gas liquids from “wet” gas.
Dry gas consists of methane, while wet gas contains both methane and natural gas liquids such as ethane and propane.
In fact, the ability to readily sell dry gas might actually boost wet gas production, thus providing increased volumes of low-cost feedstock for an increasingly competitive U.S. petrochemical industry, the study report says.
Energy security From the perspective of U.S. energy security, the volumes of LNG likely to be exported would not have any material effect on the availability of gas in the U.S. domestic market, while creating a market for gas produced along with oil could improve the economics of U.S. shale oil development, the study report says.
Internationally, the introduction of competitively priced U.S. LNG into the global gas market would likely put downwards pressure on global gas pricing. And the entry of the U.S. into the global market for gas supplies would strengthen U.S. foreign policy interests and enable the United States to assist its strategic allies in meeting their energy needs, the study concluded.
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