Deloitte has just released a new economic analysis estimating the potential worldwide economic impact of US LNG exports titled, “Exporting the American Renaissance: Global impacts of LNG exports from the United States.”
The study says that global price and geopolitical implications of US LNG exports could be much more dramatic than any US price increase, including possibly hastening the transition away from oil price indexation of gas supply contracts.
In a few short years, the Shale Revolution has created a 180-degree shift in thinking. Prior expectations that the US would become a major importer of LNG have been replaced by the possibility that the US will become a major LNG exporter. This is all due to the abundance of exploitable natural gas from unconventional resources, such as shale formations.
North American natural gas prices collapsed from more than $10/MMBtu in 2008 to less than $3/MMBtu at times during 2012. However, gas prices in Asia and Europe remain high, creating huge price spreads from the US. These large price spreads have enticed foreign buyers seeking lower-cost gas to consider US supplies, while US producers are salivating at the opportunity to sell to foreign markets.
Other US LNG export studies have focused on impacts to the US from exporting natural gas. However, this Deloitte MarketPoint analysis examines how exports might alter the economic balance in global natural gas markets, as well as potential price impacts, gas supply changes, and flow displacements, if the U.S. were to export a given volume of LNG to Asia or Europe. Key questions addressed in this report include:
· How could US LNG exports affect prices in the US and global markets?
· How much could price spreads narrow as a result of US LNG exports and other market developments?
· Which countries win and lose from US LNG exports?
· What future natural gas projects might be displaced?
· How could a more competitive global LNG market that is less dependent on oil-indexed gas prices affect projected results?
The global price and geopolitical implications could be much more dramatic than any US price increase, including possibly hastening the transition away from oil price indexation of gas supply contracts.
The study scenarios show complex market dynamics and clear economic impacts with potential geopolitical implications, including:
· US LNG exports could hasten the transition away from oil price indexation of gas supply contracts.
· Prices are projected to decrease fairly significantly in regions importing US LNG, but only marginally increase in the US.
· US LNG exports are projected to narrow the price difference between the US and export markets and hence, the market will likely limit the volume of economically viable US LNG exports.
· US LNG exports are projected to provide an economic benefit to gas importing countries.
· Gas exporting countries could suffer a decline in trade revenue due to price erosion and/or supply displacement.
· US LNG exports could also displace some oil consumption through increased gas-fired electric power generation.
For more information about the study, visit www.deloitte.com/energysolutions.