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Report: U.S. GHG Limits Could Hasten Atlantic Basin Connectivity

Whether and by how much emissions of greenhouse gases (GHG) by U.S. power generators are restricted in the future will have a large impact on the evolving Atlantic Basin gas market, a new report claims.

Strict limits on GHG would increase the power industry's focus on gas-fired generation, ratcheting up gas demand and increasing reliance on imports of liquefied natural gas (LNG) in the future, according to analysts at consultancy Booz & Co. This would make for a more integrated Atlantic Basin market.

Citing International Energy Agency figures, Booz said U.S. gas demand will grow at rate of about 1.5% per year until 2015, which then will taper to about 1.1% per year until 2020-2030. "One interesting question is what would happen if the new U.S. administration introduces stringent greenhouse gas regulations," the consultants said. Assuming a middle-of-the-road scenario for GHG limits results in a "substantial" upward swing in U.S. gas demand. "Most of this would come from suppliers including Nigeria, Trinidad and Tobago, Egypt and Algeria," the analysts said.

"[A] significant portion of U.S. additional demand would likely be met by volumes otherwise targeted for Europe. This may challenge the economic viability of several of the more than 30 European regasification expansion and new-build projects that are planned, up to a capacity of about 130 [billion cubic meters] by 2015."

Prices also would be impacted as connectivity of markets across the Atlantic Basin grows, Booz said. "We could expect upward price pressure and possibly higher price volatility, in particular for short-term markets and energy exchanges.

"Gas prices in the Atlantic Basin would become even more closely aligned to each other. At the same time, the Asian markets would remain relatively unaffected and self-contained. In effect, the current tri-regional gas market might become more of a bi-regional gas market."

In the report the analysts raise doubts about future gas productive capacity in the United States. "North American gas production is reaching a plateau; the resulting increased demand for gas will have to be satisfied by LNG imports," the report said. However, the analysts make no mention of recent successes of U.S. gas producers in a variety of gas shale plays, both established and emerging (see NGI, May 26).

The U.S. Energy Information Administration has noted domestic production growth, driven by new deepwater Gulf of Mexico infrastructure and the strength of domestic onshore plays (see NGI, March 17). Producer BP plc also has acknowledged domestic production growth in a recent report (see related story). The EIA has projected that GHG emissions limits could drive up the price of natural gas (see NGI, May 5). Additionally, a number of industry analysts and executives have predicted a dearth of LNG supplies available to the U.S. for some time to come (see NGI, May 26; May 19).

The full report is available on the Booz website,; click on "What We Think" and then "Reports and White Papers."

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