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U.S. LNG Export Forecast Raised Due to Optimistic Market Outlook

U.S. LNG Export Forecast Raised Due to Optimistic Market Outlook


  Subject Matter Expert:
  
Deepa Poduval: PoduvalD@bv.com
 

Forecast for U.S. LNG Exports Raised
as Market Outlook Continues Optimistic

Given the number of LNG export licenses issued to projects that are likely to proceed, Black & Veatch has now raised its forecast for LNG exports by 2020 from the U.S. and Canada to 10 to 14 billion cubic feet per day (Bcf/d).

“Tens of billions of dollars in capital are targeted for the seven LNG export terminals currently granted licenses by the U.S. Department of Energy (DOE),” said Deepa Poduval, Principal Consultant with Black & Veatch’s management consulting business. “Infrastructure construction, real estate transactions and other services associated with these projects are expected to spur significant levels of economic activity throughout the value chain.”


Source: Black & Veatch
Respondents were asked to select their expectation of the volume of natural gas that will be exported from the United States and Canada as LNG by 2020.


In the next few years, these projects are expected to begin liquefying gas for export. She said the first trains at Sabine Pass in Louisiana are expected to go online starting in the fourth quarter of 2015. Interest in the facility is logically high as industry stakeholders expect that its commissioning and operation will provide a preview for the remaining projects in development. Sabine Pass is the first LNG export facility to be built in the United States since the Kenai facility in Alaska in the 1970s.

The 2014 Strategic Directions: U.S. Natural Gas Industry report reveals an increase by survey respondents in the expected volume of natural gas exports, although most aren’t as high as the new Black & Veatch forecast. A greater understanding of the production capacity of U.S. resources has become widespread throughout the industry, Poduval said. 

In 2014, nearly 37 percent of respondents said they believed exports would total more than 6 Bcf/d by 2020. In 2013, less than 25 percent of respondents expected exports at this level. In 2014, 60 percent of respondents said they expected LNG exports to be less than 10 Bcf/d by 2020. Less than 7 percent of respondents put the figure at more than 10 Bcf/d. 

FERC Takes the Lead in Approval Process
 
The Sabine Pass license was issued by DOE in May 2011, but then a two-year gap occurred before DOE issued its next license, as the debate raged between proponents and opponents to LNG exports. Over the last year, however, meaningful shifts have occurred in the DOE’s handling of license applications. First, the DOE issued six LNG export licenses in quick succession beginning in May 2013. Second, in August 2014, DOE said it would issue licenses only after applicants had completed an environmental review by the Federal Energy Regulatory Commission (FERC). 

Under the National Environmental Policy Act of 1969, FERC has the authority to require that environmental impact studies be considered before projects can move forward. This requires a major at-risk investment, typically in the $65 million to $100 million range per project. The procedural change thus increases the likelihood that only serious projects with adequate funding will attempt to move through the DOE export license approval process.

Importantly, the move also levels the playing field for proposed LNG export projects since DOE had been reviewing license applications in the order in which they were received, putting those filing applications later at a material disadvantage. 

“With DOE’s license review now following FERC, projects that aggressively approach their environmental review schedule can move ahead faster rather than being hostage to their position in the DOE export license application queue,” Poduval said. 

The DOE obligation to ensure that exports do not harm the domestic market remains, and it retains the ability to apply restrictions on exports if there are significant price impacts on the U.S. market.

In Canada, proposed projects continue to suffer from regulatory and environmental delays, high costs and fiscal uncertainty that have hindered development on all but a couple of frontrunners, Poduval noted.

International Markets Demonstrate Resistance to High Prices

As the path to less expensive U.S. gas becomes more viable, Asian buyers are increasingly pushing back on higher cost supplies from their suppliers in Asia, Australia and the Middle East, Poduval said. This pushback is stalling some of the more expensive LNG projects in Canada, Australia and East Africa, with Asian buyers holding back on long-term purchase commitments from these projects in pursuit of more favorable price terms. 

“One of the dangers for U.S. LNG exports continues to be that they could shrink the very price spread that makes them attractive,” Poduval said.


Source: Black & Veatch
Respondents were asked what they see as the biggest impediments to U.S. LNG exports.


Also on the international front, Poduval noted the announcement of an agreement for Russia to supply natural gas to China via a new pipeline. This deal for gas supply over 30 years, estimated to be worth $400 billion, was considered by some as the “Holy Grail” of international natural gas agreements following stalemated negotiations for more than 10 years between the two countries.

The deal could provide much-needed market diversity for Russia, which exports 80 percent of its natural gas to an increasingly unfriendly Europe that is pursuing other sources of supply. In addition, Russia would potentially supplant some LNG demand from China by supplying about 3.5 Bcf/d of natural gas under this agreement.

It should be noted, however, that there continues to be significant uncertainty surrounding Chinese demand for natural gas imports. For example, China’s National Energy Administration in August 2014 cut its 2020 shale gas output projections in half to about 3 Bcf/d, highlighting one of many variables that continue to be in flux.

Alaska LNG Pipelines Continues to Make Progress

The oft-discussed Alaska LNG pipeline project continues to demonstrate progress. After more than 30 years of pursuing various projects, for the first time the project has entered into the pre-FEED (Front End Engineering and Design) stage. This project, which would be the largest in North America, with a capital cost estimate of $45 billion to $65 billion, will bring gas from the North Slope along an 800-mile pipeline to south-central Alaska, where it will be liquefied for shipping to Asian markets.

“With 2014 signaling the beginning of the next phase of the U.S. regulatory process and with the first export project scheduled to be online in 2015, it appears that momentum is continuing to build behind U.S. LNG exports,” Poduval said. “But the marketplace continues to be subject to geopolitical events and regional economics.”

 



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