Even though he has suggested that a large amount of U.S. liquefied natural gas (LNG) exports could eventually jack up Henry Hub prices by as much as $1.40/Mcf by 2018, Robert Brooks, a founder of RBAC consultants in Los Angeles, told NGI Thursday there is great uncertainty surrounding any such predictions.
What he is most certain of, however, is that exports likely are going to be small (2-4 Bcf/d) compared to marketed U.S. natural gas production in 2011 (66 Bcf/d), and at those levels his models would project very modest, if any, appreciable impact on domestic U.S. natural gas prices. A second area Brooks said he is more sure of is continued growth in U.S. gas production from the shale boom.
RBAC Inc. is the developer of energy market models used by energy consultants, including a proprietary natural gas forecasting system called GPCM.
Brooks’ latest report issued in late February follows on work commissioned by Cheniere Energy, which is planning to export up to 2 Bcf/d from its Sabine Pass LNG holdings in Louisiana, and the two studies late last year by Deloitte MarketPoint LLC and the U.S. Department of Energy’s (DOE) Energy Information Administration (EIA) (see Daily GPI, Feb. 23; Feb. 17; Jan. 20; Dec. 19, 2011).
EIA predicted 3% to 9% price increases based on exports of 6 Bcf/d and 12 Bcf/d, while the Deloitte study found that the price impact would range from less than 10 cents/MMBtu to about 22 cents/MMBtu depending upon location.
RBAC’s work applied its model to a projected 6 Bcf/d of exports, although Brooks scoffs at the number as highly unlikely. His model turned up an average impact on domestic prices of $1.33/Mcf, and that would be applied to an assumed base price of $3.50/Mcf gas in 2018.
“The initial $1.40/Mcf impact [in the RBAC report] was just an initial peak, and then it goes down, and in the long run it goes back up again as gas-fired generation grows and you get more competition between exports and gas for generation,” Brooks said. “But you have to remember there is a huge difference between a 2 Bcf/d export market and a 6 Bcf/d market.”
Brooks also thinks gas prices will stay low for a long period of time. “There is a huge resource out there, and it is going to continue to be exploited, even if it is exploited through more wetter plays because you’re still getting a lot of gas out of those plays.” Because of this, he is convinced “production is not going to dry up anytime soon; or at all.” It would be even faster if producers kept going after all the dry gas plays, too.
A couple of drivers that are not easy to model involve the amount of increased gas demand that may develop in the United States to compete, in effect, with gas exports, and Brooks agreed most of that demand growth likely will be in the power generation space. A second source of competition is global in other gas-producing nations, such as Australia, that are ramping up their liquefaction and gas exporting capability. It is uncertain how much U.S. gas could be displaced in the global market from these other new plants around the world.
“So you have lots of factors out there, and anyone who thinks they have the perfect forecast is fooling themselves,” said Brooks.
Many energy consultants use his company’s GPCM tool with different assumptions than he used in his latest report. Brooks said Cheniere used a consultant that applied the GPCM tool with its own different assumptions but came to basically the same conclusion for 2 Bcf/d of exports.
“I think we are in pretty good agreement on assumed volumes running around 2 Bcf/d or lower, but the problem is when you start talking about 6 or 12 Bcf/d, it’s unclear how realistic that is for the 2018 to 2025 time period. There has to be a global limiting factor on how much of the world’s supply would come from North America; we’re not the only supplier in the game; we’re the new kid,” Brooks said.
He thinks Cheniere is far ahead of its U.S. counterparts because it has lined up customers (see Daily GPI, Feb. 28; Jan. 31). “If we were betting on something, we surely would be betting that Cheniere would be exporting something.” When? That is still unclear, he said.
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