Deloitte: Assumed US LNG export volumes could boost gas prices

If the US were to export 6 bcfd of LNG in the future, a world gas model developed by Deloitte MarketPoint LLC estimates a weighted-average price impact of 12¢/MMbtu on US prices during 2016-35, Deloitte LLP announced Dec. 15 at its annual Oil & Gas Conference in Houston.

This projected increase in gas prices represents a 1.7% increase in the projected average US city gate gas price of $7.09/MMbtu during this period.

The projected price increase varies by location. The projected impact on the Henry Hub price is 22¢/MMbtu because of the Henry Hub closeness to Gulf Coast LNG export terminals.

The estimate declines to 10¢/MMbtu for markets distant from the Gulf Coast such as New York or Chicago, Tom Choi, natural gas market lead for Deloitte MarketPoint, told reporters during a news conference. He helped develop the world gas model.

“If price is not significantly affected, then scarcity and shortage of supply are not significant issues,” Choi said. The model was developed to help producers, midstream players, and consumers plan how they might mitigate the gas price consequences of anticipated US LNG exports in the future.

The projected sources of incremental supply used to meet the assumed export volumes will come from multiple sources (both shale gas and conventional gas), import volumes, and demand elasticity, the report said, noting the bulk of incremental volume is expected to come from shale gas production.

“Based on our analysis, it is unlikely that a limited amount of LNG exports would cause [the] US gas price to be set at global price levels,” the report said.”For one thing, there is no world gas price, in contrast to the oil market in which there is a world oil price. Natural gas, unlike oil, is highly unlikely to ever have a world price.”

Researchers said it’s possible that LNG exports might work to decrease US gas price volatility.

“This is counterintuitive but quite possible because LNG exports, with their well-known export capacities, will prompt incremental supplies that could be utilized to meet peak domestic demand,” the report said. “During peak periods when domestic prices shoot up, it might be more advantageous for LNG exports to not export but rather keep the supplies in the US.”

Contact Paula Dittrick at paulad@ogjonline.com.

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