Deloitte MarketPoint LLC (DMP) conducted an independent assessment of the potential economic impacts of LNG exports from the United States.  Using its integrated “North American Power, Coal, and World Gas Model,” Deloitte MarketPoint sought to answer the following questions:

How would US LNG exports adversely impact domestic consumers of natural gas?

Increased competition for supplies and accelerated resource depletion will likely raise domestic prices, but by how much?

Will the level of exports being considered raise prices enough to cause economic damage as some objectors contend? 

Bottom line: Given the assessment’s assumptions, the magnitude of domestic price increase that results from export of natural gas in the form of LNG is likely quite small.

HIGHLIGHTS

Abundant shale gas resources mitigate the price impact; in fact most of the incremental supply comes from shale gas production.

Volume of exports are small relative to total domestic market and hence are insufficient to raise US prices to those of higher priced markets in Asia and Europe.

Assuming 6 bcfd (approx. total volumes of the three LNG export applications at Sabine Pass, Freeport and Lake Charles), the weighted-average price impact is forecast at only $0.12/MMBtu on U.S. prices from 2016 to 2035.

The $0.12/MMBtu increase represents a 1.7% increase in the projected average U.S. citygate gas price of $7.09/MMBtu over this time period.

Major downstream markets have impacts around $0.10/MMBtu or less

The projected impact on Henry Hub price is $0.22/MMBtu, significantly higher than the national average because of its close proximity to the prospective export terminals.

The projected price impacts diminish with distance away from the Gulf. Distant market areas’ projected price impacts are less than $0.10/MMBtu.

Focusing solely on the Henry Hub or regional prices around the export terminals will greatly overstate the total impact on US consumers.

The impact dissipates with distance from export terminals, which are clustered in the Gulf.

Gas prices in the Eastern US, historically the highest priced region, could be dampened by incremental shale gas production within the region from the Marcellus Shale.

The Marcellus Shale is projected to dominate the Mid-Atlantic natural gas market, meeting most of the regional demand and pushing gas through to New England and even to South Atlantic markets.

The expected result is displacement of volumes from the Gulf, which combined with the growing shale gas production out of Haynesville and Eagle Ford, means the Gulf region is projected to continue to have plentiful production and remain one of the lowest cost regions in North America.

TAKEAWAYS

The results show that the North American gas market is dynamic.

If exports can be anticipated, then producers, midstream players, and consumers can act to mitigate the price impact.

Producers will bring more supplies online, flows will be adjusted, and consumers will react to price change resulting from LNG exports.

The study also addresses key concerns raised about US LNG exports, including:

Concern: Contribution of shale gas to US market could be grossly overestimated.

DMP Analysis: Abundant shale gas resources and commitment by energy majors to develop those reserves will likely ensure strong future growth of shale gas production.

Concern: High level of uncertainty that shale gas can be produced as modeled due to concerns including regulatory issues, access issues, and environmental issues.

DMP Analysis:  Regulations will likely push best practices already adopted by leading companies and restrict fracking in only the most sensitive areas.

Concern:  Exporting gas will result in a significant increase in the price of gas and electricity for US industry and consumers, causing them to be uncompetitive in global markets, leading to a loss of jobs.

DMP Analysis:  The modest price impact from proposed export volumes is unlikely to cause the US to be uncompetitive in global markets. The projected impact on electricity prices is projected to be even smaller than the projected impact on gas prices

Concern:  LNG exports will cause US gas prices to trade at global price levels.

DMP Analysis:  The volume of LNG exports, as well as the high cost of LNG exports, is inadequate to cause US prices to trade at global price levels.

Concern: Exporting gas will reduce US ability to maximize use of gas domestically.

DMP Analysis: There are sufficient volumes of domestic natural gas for both domestic consumption and LNG exports.