EIA outlines potential impacts from more natural gas exports

Increased US natural gas exports potentially would lead to higher prices, increased production, less consumption, and more imports from Canada by pipeline, the US Energy Information Administration said in Jan. 19 analysis.

Increased US natural gas exports potentially would lead to higher prices, increased production, less consumption, and more imports from Canada by pipeline, the US Energy Information Administration said in a Jan. 19 analysis. EIA studied the matter at the request of the US Department of Energy’s Fossil Fuels Office.

“Larger export levels lead to larger domestic price increases, while rapid increases in export levels lead to large initial price increases that moderate somewhat in a few years,” it said in an overview. “Slower increases in export levels lead to more gradual price increases but eventually produce higher average prices during the decade between 2025 and 2035.”

US markets would balance in response to increased exports, largely through increased production, the report suggested. More production would satisfy 60-70% of the export increase, “with a minor additional contribution from increased imports from Canada,” it said. “Across most cases, about three quarters of this increase is from shale sources.”

Remaining additional gas exports would come from gas which would have been consumed domestically if prices did not climb, EIA said. Most of the delivered gas decrease would come from electric power plants, which would shift primarily to coal-fired generation and secondarily to renewable sources, though there would be a small decrease in total generation due to higher gas prices, it indicated. Improved efficiency and more conservation also would have an impact, it added.

Several factors will influence the level of any US gas exports, the report emphasized. Costs would need to be competitive with those for overseas projects, it noted.

“The investment to add liquefaction capacity to an existing regasification terminal in the United States is significant, typically several times the original cost of a regasification-only terminal,” it said. “However, the ability to make use of existing infrastructure, including gas processing plants, pipelines, and storage and loading facilities, means that US regasification terminals can reduce costs relative to those that would be incurred by a ‘greenfield’ LNG facility.”

Other characteristics

Many currently proposed gas export projects elsewhere in the world would be stand-alone complexes which would produce, liquefy, and export stranded gas, according to EIA. They would require more new infrastructure, but also could be located near supplies which would not be developed otherwise, it said.

“Also, while these projects may require processing facilities to remove impurities and liquids from the gas, the value of the separated liquids can improve the overall project economics,” it said. “On the other hand, liquefaction projects proposed for the Lower 48 US states plan to use pipeline gas drawn from the largest and most liquid gas market in the world. Natural gas in the US pipeline system has a much greater inherent value than stranded natural gas, and most of the valuable gas liquids have already been removed.”

Potential buyers might place value on the global LNG supply diversity more US exports would provide, but relatively high shipping costs would put supplies from the US at a cost disadvantage relative to supplies closer to Asia and other key markets, the analysis said. LNG export projects in the US would frequently compete not just against other LNG complexes, but against other gas supply projects aimed at similar markets such as pipelines from traditional suppliers or projects to develop shale gas in Asia or Europe, it said.

Two organizations separately said that the gas price increases outlined in EIA’s analysis deserve close attention. Findings affirm arguments which the American Public Gas Association has raised since the first US gas export application was filed in 2010, the association representing public and community-owned gas utilities said on Jan. 19.

Paul N. Cicio, president of the Industrial Energy Consumers of America, cited estimates in the analysis that LNG exports could raise US gas prices 36-54% by 2018. “By anyone’s measure, those are substantial cost increases,” he said.

Contact Nick Snow at nicks@pennwell.com.

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