Tag Archives: liquefaction

New EIA Report Asks: What if the US Exported More LNG?

In a report recently released by the EIA, the Office of Energy Analysis (OEA) takes a stab at answering a question that was formally asked by the Department of Energy’s Office of Fossil Energy back in August 2011: What would be the “impact of increased domestic natural gas demand, as exports?”

OEA’s analysis considered four different scenarios consisting of a slow (1 Bcf/d/yr) or rapid (3 Bcf/d/yr) rate of “phasing-in” increased exports, and a low (6 Bcf/d) or high (12 Bcf/d) ultimate expected rate of export.[1]

As one might expect, their results suggest that increased exports of natural gas (as liquefied natural gas, or LNG) would lead to upward pressure on domestic gas prices. This, in turn, would result in increased domestic production, and (to a lesser degree) upward pressure on electricity prices. The level of the impact on power generation would partly be a function of the difference between the rate of the increase in exports, and the rate of the increase in production.[1]

This upward tick in natural gas production could reverse a recent trend that has seen companies moving away from dry gas plays. As an example, Chesapeake Energy just announced plans to  reduce the number of its operating dry gas rigs by ~68%,  a result of the currently low natural gas prices.[2]

The current state of affairs in the domestic natural gas markets is significantly different than it was just a few years ago, prior to the rapid adoption of hydraulic fracturing and horizontal drilling, and prior to the recession. Several LNG regassification import terminals were permitted, financed, and built based on the expectation that the US would remain a net importer of natural gas for the foreseeable future.[3][4]

Now, several of those import facilities are going through a similar process to get liquefaction facilities in place that will enable the exports being considered in this EIA report. Cheniere Energy is doing just this. The company has plans to construct a liquefaction facility at its Sabine Pass LNG import facility, which will have approximately a 2.6 Bcf/d export capacity. The company has already initiated FERC, NEPA and DOE permitting procedures and expects the facility to begin operations as early as 2015. They are also considering plans to construct an additional 1.8 Bcf/d export facility in Corpus Christi.[5] 

However, it is still not certain that companies like Cheniere Energy will be able to recognize a return on their investment with these export facilities. Just as the adoption of new drilling technologies reduced the need for US LNG imports, the spread of those technologies to other parts of the world may also reduce the US opportunity to export.

Very importantly, the authors of this EIA report note that the National Energy Modeling System (NEMS) used for their projections “is not a world energy model and does not address the interaction between the potential for additional U.S. natural gas exports and developments in world natural gas markets.”[1]

End Notes:

[1] EIA Report, “Effect of Increased Natural Gas Exports on Domestic Energy Markets,” Dated 19 January 2012: http://www.eia.gov/analysis/requests/fe/pdf/fe_lng.pdf

[2] O&GJ, Chesapeake dry rig count cut: http://www.ogj.com/articles/2012/01/chesapeake-cuts-operated-dry-gas-drilling-rig-count.html

[3] FERC: Approved & Proposed (Potential) North American LNG Import/Export Terminals: http://ferc.gov/industries/gas/indus-act/lng.asp

[4] Market Watch, LNG Exports: http://www.marketwatch.com/story/shale-gas-opens-door-to-us-lng-exports-2011-12-05

[5] Market Watch, Cheniere: http://www.marketwatch.com/story/cheniere-plans-second-us-lng-export-terminal-2011-12-16



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