North American gas producers drowning in oversupply and low prices will be waiting a while before any liquefied natural gas (LNG) export tankers come to their rescue. And even then, whatever modest price support materializes could be overwhelmed by yet more supply growth, some energy analysts are saying.
By the end of 2017 -- about five and a half years from now -- eight new export projects could be operational with a combined capacity of 10 Bcf/d, according to analysts at Raymond James & Associates Inc. Because any future exports will occur along with multiple other developments in gas markets, forecasting their impact on prices "would be a rather arbitrary modeling exercise," Raymond James said. Even so, exports are not expected to impact prices as much as producers might hope.
"Given the ability of U.S. unconventional plays to supply practically limitless quantities of gas -- limited only by the industry's willingness to drill -- any incremental gas demand for LNG could be offset nearly 1:1 by increased production," Raymond James said. "Above and beyond supply, factors like overall economic growth, expansion in natural gas power generation and transport and the state of the global LNG market are all 'black boxes' that far into the future."
By Raymond James' count, there are now 14 projects to export liquefied North American gas at some stage of development, including the existing operational terminal on the Kenai Peninsula in Alaska (see Daily GPI, Dec. 20, 2011) and three projects proposed for British Columbia (BC), two at Kitimat and one on Douglas Island. One of the BC projects and Cheniere Energy Inc.'s Sabine Pass LNG are furthest along. These two could be online by the end of 2015, but their start up will likely be later, Raymond James said. "LNG exports are unlikely to become truly needle-moving until the end of this decade."
Analysts at Pan EurAsian Enterprises Inc. are of a mind similar to their colleagues at Raymond James with regard to the potential price impact of LNG exports.
Pan EurAsian counts 13 export projects in the works in the United States alone -- excluding a recently announced project by Excelerate Energy for a floating liquefaction facility off the Texas coast (see Daily GPI, May 16) but including a small, containerized LNG export project proposed by Carib Energy (see Daily GPI, Aug. 2, 2011). The firm's list now counts 125.6 million metric tons per year of proposed LNG export capacity. "If all these projects were to be built and run continuously at full capacity (both questionable assumptions), they would be exporting over one-quarter of the present natural gas production in the U.S. as LNG."
Even if exports were to ramp up to that substantial amount, Pan EurAsian said "the U.S. production base can expand to meet the demand without distorting the domestic market for natural gas." This is largely because the high variable cost of U.S. export projects will make them sensitive to global LNG price spreads. On the other hand, Australian and Canadian export projects will have high fixed costs and low variable costs, which will make them more aggressive sellers when spreads narrow, Pan EurAsian said, as the firm has noted previously (see Daily GPI, March 27).
And last week yet another project to export LNG was announced. Southern LNG Co., a subsidiary of El Paso Corp., applied to the Department of Energy for authorization to export up to 0.5 Bcf/d from its Elba Island terminal in Savannah, GA, to countries that have free trade agreements with the United States (see Daily GPI, May 21).
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