Deloitte: US LNG exports will face complex market dynamics

Anticipated US natural gas exports are expected to provide economic benefits to gas importing countries but probably will not trigger a significant rise in US gas prices, said a report released by Deloitte’s Center for Energy Solutions.

“This shows why the government doesn’t need to put a lid on projects. This says you don’t need to artificially constrain this,” Peter J. Robertson, independent senior advisor to the oil and gas group of Deloitte LLP, said during a Jan. 8 media briefing in Houston on the report, “Exporting the American Renaissance, Global impacts of LNG exports from the US.”

Robertson said exports likely will strengthen trading relationships between the US and LNG-importing nations, especially members of the Organization for Economic Cooperation and Development.

Deloitte researchers analyzed global gas markets if 6 bcfd of US LNG were to be shipped to either Asia (2 bcfd each to Japan, South Korea, and India) or Europe (3 bcfd each to UK and Spain). The 6 bcfd is not a projection but rather an assumption to evaluate gas markets, said the report, the third in a Deloitte series (OGJ Online, Dec. 16, 2011).

“Prices are projected to decrease fairly significantly in regions importing US LNG, but only marginally increase in the US,” the study said.

Tom Choi, Deloitte MarketPoint natural gas market leader, said the projected increase of average US prices during 2016-30 is about 15¢/MMbtu.

“We don’t see a global gas price evolving because of high transportation costs,” Choi said.

The report also discussed pricing strategies, saying some exporters will continue to price gas supplies based on the oil price index. But oil-based pricing is likely to eventually erode, Choi said.

He believes gas markets will transition toward a more competitive price regime, in part because US LNG sold to Asia-Pacific buyers is not indexed to oil prices.

US LNG is widely expected to be indexed to Henry Hub gas prices rather than to crude oil, he said.

Contact Paula Dittrick at paulad@ogjonline.com.

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