Market dynamics key to US LNG exports to Asia, witnesses say

US exports of LNG to Asia are more likely to be determined by overseas market dynamics than by US government policies, witnesses told a US House Foreign Affairs Committee subcommittee on May 29.

The observations came as the US Department of Energy proposed giving priority in its national interest determinations to LNG export proposals that already meet National Environmental Policy act requirements (OGJ Online, May 29, 2014).

“I think there’s a prevailing view in the industry that LNG prices in Asia will come down to around $13[/MMbtu} and domestic gas prices will rise to around $6. That would make exports close to a wash for US producers,” Mikkal E. Herberg, research director in the National Bureau of Asian Research’s Energy Security Program, told the committee’s Asia and the Pacific Subcommittee.

Jane Nakano, a fellow in the Center for Strategic and International Studies’ Energy and National Security Program, urged caution in forecasting changes in relationships between Asian gas importers and their traditional suppliers. “The scope of US LNG influence on Asian demand for supplies from other countries is difficult to ascertain,” she said.

Diane G. Leopold, president of Dominion Energy, offered a similar view. “The international market is somewhat self-limiting with competition from countries like Australia,” Leopold said. “If US prices go up much, the attraction for foreign customers starts to go away.”

US potential

Forecasts from Japan’s Institute of Energy Economics (IEEJ) suggest that Asia’s LNG demand will increase from 180 million tonnes/year (tpy) in 2013 to 360 million tpy in 2040, Herberg said in written testimony. As of early 2014, DOE had issued permits for five potential US LNG export projects, with total capacities equivalent to 65-70 million tpy, that could come on line between 2015 and 2025.

“Many more projects are in line for approvals for a total potential of more than 100 million tpy,” Herberg said. Development of that potential, he pointed out, depends heavily on the cost and price of US LNG and global LNG prices.

Asia’s oil-linked, spot LNG prices recently were $16-17/MMbtu, well above Europe’s $9-11/MMbtu and US Henry Hub’s $4.50/MMbtu.

“With a liquefaction and transportation cost estimate of roughly $6/MMbtu to send US Gulf Coast LNG to Asia, US gas at current prices would be highly competitive in Asia’s market,” which would benefit from the introduction of flexible, market-based prices, Herberg said.

He noted expectations for an increase in the US price of natural gas and of a decline in the price of LNG in Asia toward $12-13/MMbtu as new supplies emerge from Australia, Russia, the US, Canada, and offshore East Africa.

“While all this is highly speculative, the point is that the future volume of US LNG exports to Asia will ultimately depend on Asian LNG demand and prices and US gas prices, rather than how much LNG supply is permitted by the US government,” he said.

Supplier competition

In written testimony, Nakano predicted growing competition among LNG suppliers.

“The pace of US LNG export approval to countries without a free trade agreement with the United States, combined with the commercial viability of a specific project, greatly influences the degree to which US LNG supplies can gain a foothold in Asia,” she said.

Factors outside the US energy posture appear likely to influence future LNG supplies from Qatar and Malaysia, she continued. “In Qatar’s case, new projects are currently on hold in the North field, where nearly all of Qatar's gas reserves are, while operators examine ways to sustain high production levels of production,” Nakano said. Qatari officials remain mindful of the potential for an increase in supply from South Pars, the extension of North field into Iranian waters, if the Islamic Republic resolves its conflict with the West, she added.

In Malaysia, economic development and modernization are increasing energy consumption. “The country appears to be striving to maintain its gas production level through the development of new fields to meet the domestic demand as well as to fulfill its external obligations,” Nakano indicated.

Uncertain demand

Nakano said the pace of energy-related infrastructure development and the scope of US environmental regulations also might affect US LNG sales in Asia.

“Aside from these supply-side variables, moreover, the trajectory of future LNG demand outlook for individual countries in Asia is far from certain,” she said. “It will be influenced by a mixture of factors, such as the role of nuclear energy in Japan, the pace of shale development in China, and the potential of pipeline gas to Japan and South Korea, as well as the trajectory of the economic slowdown in China.”

Herberg said the best way for the US to bolster its influence in Asian LNG markets is to maximize supply available for Asia, as well as Europe, within the framework of allowing markets to ultimately determine the volumes and prices.

“I would not advocate trying to use LNG exports or availability as some sort of diplomatic tool,” he told the subcommittee. “US influence will come from being a substantial, reliable, and price-competitive source of LNG to the global market.”

Contact Nick Snow at

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