Natural gas exports likely unprofitable for decades

While discussion of exporting liquefied natural gas has focused on the effect on domestic prices, a new study finds that international prices will be the limiting factor.

In fact, not much U.S. gas is likely to find a market overseas through at least 2040, according to “U.S. LNG Exports: Truth and Consequence,” published Aug. 10 by the James Baker Institute for Public Policy at Rice University in Houston, Texas.

Baker Institute economist and report author Kenneth B. Madlock cites several reasons.

First, the current price differential — around $3 per million British thermal units in the U.S., with imports to Japan at around $17 — is transitory, Madlock wrote.

Prices are so low in the U.S. now because a mild winter coincided with a surge in production. And they’re so high in Japan only while suppliers adjust to that country’s sudden shift from nuclear power to natural gas following the March 2011 tsunami that knocked out the Fukushima nuclear plant.

In addition, the amount of export capacity proposed in the U.S. would have a significant effect on global prices.

“LNG trade in 2011 totaled 32 (billion cubic feet per day, or bcfd),” Madlock wrote.

“Currently, in the U.S. alone there is over 17 bcfd of export capacity in various stages of proposal and development,” he continued. “If even one-third of this capacity is built and placed into operation, it will dramatically alter the ability to supply the Asian market with natural gas.”

Indeed, even without being exported, U.S. shale gas has been reducing prices in Europe and Asia by displacing gas that could have been imported here.

“LNG supplies whose development was anchored to the belief that the United States would be a premium market have been diverted to European and Asian buyers,” Madlock wrote.

That downward price pressure is changing the pricing paradigm, he wrote — from the long-time practice of indexing contracts to the price of oil to indexing them instead to the lower spot price.

Finally, Madlock sees plenty of conventional and unconventional gas supplies available for development globally.

“The apparent profitable export option from the U.S. market based on current market conditions is transitory, as current market conditions beget a supply response abroad that erodes current price differentials,” he concludes.

With or without exports, Madlock sees a long-run equilibrium price of U.S. natural gas at between $4 and $6 per thousand cubic feet “for many years to come.”

“U.S. LNG Exports: Truth and Consequence” may be downloaded from the Baker Institute’s website.

8 Comments on "Natural gas exports likely unprofitable for decades"

BillT on Fri, 17th Aug 2012 3:49 am 



In other words…”suckers!” The cost to frak it will be more than it is worth for many many years…

DC on Fri, 17th Aug 2012 4:35 am 



Why do they not mention that NG is not ‘export’ friendly? There are no undersea pipelines to Asia or Europe, nor can there be. LNG tankers and ports are hideously expensive, the only way to move NG over the oceans. N.A. frak-gas has to be consumed where it is fraked basically. Sure you *could* export it, but the cost would so prohibitive, so why bother? To make a buck? When your out of NG, will try buy back everything you exported overseas with your now worthless dollars?

Strange…

Arthur on Fri, 17th Aug 2012 10:01 am 



“Why do they not mention that NG is not ‘export’ friendly? There are no undersea pipelines to Asia or Europe, nor can there be.”

Are you sure?

http://en.wikipedia.org/wiki/Nord_Stream

BillT on Sat, 18th Aug 2012 12:58 am 



“When financialization fails, the consumerist economy dies.” This is why the end of oil may never come. The economy will collapse first…

“When the Weakest Critical Part Fails, the Machine Breaks Down”

http://www.zerohedge.com/news/guest-post-when-weakest-critical-part-fails-machine-breaks-down

Arthur on Sat, 18th Aug 2012 10:10 am 



Bill, the collapse of an economy is never a permanent situation. Economies always recover after a Great Default as long as there are people around with hands and brains to create value. One barrel of oil contains the equivalent of eight manyear of manual labour, meaning there will be demand for it even if a barrel costs 200 or 300 $. oil will be phased out only when the price per kwh from renewables will be lower than that of oil. The Soviets worked for 100$ per month and so will Americans if they have choice.

Arthur on Sat, 18th Aug 2012 10:15 am 



Uhh…. have NO choice.

After a collapse, new economic equilibriums will be found… Maybe some mixture of capitalism and socialism.

BillT on Sat, 18th Aug 2012 1:09 pm 



Ah, but…it takes a world wide financial system for our modern world to work. We import most of the raw materials that make it go. This collapse may be permanent in that we will bounce back to a 3rd world level of life not experienced by the West for centuries.

Rick on Sat, 18th Aug 2012 2:25 pm 



Natural gas exports — stupid idea!