The Impact of US LNG Exports on India s Gas Market Jason Bordoff

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1 The Impact of US LNG Exports on India s Gas Market Jason Bordoff November 30, 2016 Delhi, India

2 US Natural Gas Outlook 2

3 US Shale: There Will Be Gas US Dry Gas Production Under the EIA s Reference Case Scenario Bcf/day Shale gas and tight oil plays Tight gas Other Lower 48 offshore Coalbed methane Alaska History Projection 30 Source: IEA Medium-Term Gas Market Report Source: EIA Annual Energy Outlook

4 Turnaround in US Natural Gas Outlook AEO 2005 US Net Natural Gas Imports Trillion cubic feet AEO 2016 US Net Natural Gas Imports Trillion cubic feet 9 7 Net LNG Imports Net Pipeline Imports Net Pipeline Imports Net LNG Imports Source: EIA Annual Energy Outlook 2005 and

5 The North American Shale Gas Resource Base Is Huge US Natural Gas Supply Curve, Henry Hub Breakeven Price Trillion cubic feet, $ per MMBtu Tcf at < $3 per MMBtu 1,400+ Tcf at < $4 per MMBtu ,000 1,500 2,000 Source: IHS 5

6 Marcellus/Utica to Account for Bulk of Gas Production Growth US Dry Gas Production by Area Bcf/day Source: IEA Medium-Term Gas Market Report

7 US Energy and Climate Policy Entering Uncertain Period Under my presidency, we will accomplish complete American energy independence. An America First energy plan... Told New York Times he would be willing to ban the import of Saudi oil to the United States We re going to cancel the Paris Climate Agreement We re going to rescind all the job-destroying Obama executive actions including the Climate Action Plan 7

8 Key Energy and Climate Policy Issues to Watch Clean Power Plan Unlikely to survive post-election; main tool to fulfill promise to boost coal Domestic shale regulation Regulation of new and existing wells (e.g., methane) likely to be loosened Fuel economy standards Standards up for midterm review in 2018; possibility may be weakened Energy exports Anti-trade rhetoric and environmental activism pose downside risks Renewable investment and production tax credits (ITC/PTC) Main federal support scheme for solar and wind energy has bipartisan support Paris climate agreement Has promised to cancel it; more recently open mind. US engagement at risk. Leasing on federal lands, pipeline permits, etc. Expansion of oil, gas and coal leasing; Arctic drilling possible; pipeline push 8

9 PP Impact Only Significant Post-2020 In Any Scenario U.S. Net Electricity Generation by Source With and Without the CPP (EIA AEO 2016 Reference Case) TWh 6,000 Without CPP With CPP 4, , ,088 1,374 3,000 1,500 1,185 1,471 1,784 1,201 1,702 1, ,416 1,422 1,364 1, Coal Natural Gas Nuclear Renewables Other CPP compliance period only to start in 2022, repeal would only have measurable impact on U.S. electricity mix post-2020 CPP removal could hit gas more than renewables, coal-fired generation may be the main beneficiary 9

10 Opposition to Fracking and Pipelines Is Not Going Away Opposition to Fracking in the US 40% 51% Do you favor or oppose hydraulic fracturing or "fracking" as a means of increasing the production of natural gas and oil in the US? Oppose 40% 51% Favor 40% 36% No opinion 19% 13% Americans in favor of "fracking" in the US, by political party Republican 66% 55% Source: Gallup Independent 35% 34% Democrat 26% 25% 10

11 Global Gas Market Impact of US LNG 11

12 US and Australia Dominate LNG Export Capacity Additions LNG Export Capacity Growth Between 2015 and 2021 Bcf/day Projected LNG Export Capacity in 2021 Bcf/day Corpus Christi Cameron Cove Point Freeport Sabine Pass Series Capacity in 2015 Australia Capacity in Australia Qatar US Malaysia Indonesia Algeria Source: IEA Medium-Term Gas Market Report 2016 Source: IEA Medium-Term Gas Market Report 2016, company disclosures 12

13 US LNG Export Capacity Ramping Up US LNG Export Capacity Under Construction, Commissioning, and in Operation Bcf per day, as of 10/31/ Bcf/d of US export capacity in operation, commissioning or under construction Offtakers are under no obligation to lift physical LNG volumes Export decisions will likely be based solely on variable costs Curtailments of US export capacity can (and most likely will) happen in medium-term Source: Company disclosures 13

14 If You Build It, Will They Come? Delivered Cost of US LNG in Asia and Europe as of 11/21/2016, $/MMBtu US$ 5.23 US$ 4.62 US$ 7.15 US$ US$ 4.26 Landed cost of US LNG NBP JKM Regas Port / insurance / other Fuel cost Vessel charter Canal toll 15% HH surcharge Henry Hub 0.0 Asia (via Suez) Asia (via Panama) Europe Main assumptions: Henry Hub gas price at $2.8 per MMBtu (spot price as of Nov 21, 2016), vessel capacity at 145,000 cubic meters, vessel charter rate at $40,000 per day, bunker fuel cost at $300 per ton, journey times (one-way) at 33 days, 22 days and 11 days, respectively. Source: CGEP estimates, Platts Main conclusions of a recent CGEP paper on US LNG competitiveness: US LNG export decisions will likely be based on variable costs The arbitrage window (on a variable cost basis) is open, but margins were fairly tight in most of 2016 Even small changes in a number of variables can, at times, render US LNG exports uneconomical Full utilization of US export capacity seems unlikely, especially if overseas spot prices remain at today s lows 14

15 Gas Market Impact of US LNG US LNG flexibility will undermine oil price link and the pricing power of established exporters Gas supply glut combined with US LNG flexibility is creating a buyers market US LNG can cap spot gas prices overseas (as long as the market is oversupplied and the US is the marginal supplier) Helps the creation of more efficient gas markets based on gas-to-gas competition We believe that US exports will effectively set Henry Hub as a key driver of European gas prices and weaken further their historical dependency on oil formulas. 15

16 Global Gas Prices Have Dropped Significantly Since 2015 Gas Prices in Asia, Europe and the US $ per MMBtu Source: IEA Medium-Term Gas Market Report 2016 The gap between US and overseas gas prices has narrowed significantly Global LNG glut and growing gas market competition will likely keep prices low for some time Recent price spikes driven by temporary factors (unplanned nuclear outage in France, Korea) 16

17 Geopolitical Impacts of US LNG Greater optionality and supply diversity (e.g. Lithuania, Poland) = energy security Increased negotiating leverage with dominant suppliers Greater flexibility than pipeline gas supply Cheap LNG gives further impetus for EU gas market integration The EU needs more investment in infrastructure, reverse flow capability, interconnectors, storage The Independence FSRU helped Lithuania s gas utility negotiate a ~23% price discount with Gazprom 17

18 Flexible Supply Meets Price Sensitive Demand? Destinations of US LNG Export Cargoes to Date As of September 30, of the total 33 LNG cargoes delivered from Sabine Pass through 9/30/2016 went to India US LNG is among the most flexible sources of LNG globally Most of India s LNG demand is highly price sensitive will the two meet in the future? 18

19 India Is Emerging as a Major Global LNG Importer The World Top LNG Importers in 2015 Million tons per year (Mtpa) Monthly LNG Imports in India Million tons of LNG Japan S. Korea China India Taiwan Spain UK Source: GIIGNL Source: Citi Research India was the world s 4 th largest LNG importer in 2015 India was among the biggest drivers of global LNG demand LNG imports increased 15% in 2015, on track to grow 16% in 2016, driven by low LNG prices 19

20 India s LNG Demand Growth Potential Is Very Significant The World Top LNG Importers in 2015 Million tons per year (Mtpa) High case Base case Citi Research estimates that Indian LNG demand can grow ~14 Mtpa using existing plants and infrastructure (mainly in power generation, fertilizers, petchem and refining) Another ~30 Mtpa can come with smart cities, new downstream projects, balancing need for renewables and new infrastructure in a high case scenario Most of the additional demand (especially in power) is also highly price-sensitive High-case could propel India ahead of South Korea in LNG imports Source: Citi Research 20

21 Floating Regasification Can Add Flexibility to the Demand Side Floating Regasification Capacity By Region Billion cubic feet per day US LNG increases flexibility on the supply side, FSRU technology does so on the demand side Low-cost solution for developing countries to access global LNG market on a seasonal / on-demand basis Flexible FSRU technology can be advantageous for India, given the price-sensitive nature of demand and need for additional import capacity Source: EIA International Energy Outlook

22 Natural Gas Can Reduce Local Air Pollution Dramatically 100% Comparison of Emissions from Different Fuels in Commercial and Residential Use Emissions per BTU, coal = 100% 75% 50% 25% Coal No. 6 Oil No. 2 Oil Natural Gas 0% NOx SOx PM 2.5 CO2 Lower CO2 emissions is not the only advantage of gas over coal and petroleum fuels Switching to natural gas can dramatically reduce air pollution thanks to much lower NOx and zero SOx / PM emissions Source: EPA AP-42 Compilation of Air Pollutant Emission Factors; CenSARA Area Combustion Emissions Inventory Enhancement Project Final Report

23 Thank you! For more information contact Jason Bordoff Professor of Professional Practice in International and Public Affairs Founding Director, Center on Global Energy Policy Columbia University (212)

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