Exporting the American Renaissance Global impacts of LNG exports from the United States

Transcription

1 Exporting the American Renaissance Global impacts of LNG exports from the United States A report by the Deloitte Center for Energy Solutions and Deloitte MarketPoint LLC

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3 Key Questions What might be the impact of 6 Bcfd of LNG exports on global markets? How much might they affect prices here and abroad? What sources might they displace? Which countries benefit and which ones might be hurt? How might different market assumptions affect projected impacts? We analyzed the above questions using the Deloitte MarketPoint s World Gas Model (WGM). 2

4 Key Findings from the WGM Projections Price impact is projected to be modest in the US, but greater in importing countries US LNG exports will narrow the price spread between the US and export markets Markets can determine economic level of US exports without government intervention US LNG exports benefit gas importers and hurt gas exporters Gas importing countries benefit from gas supply cost savings Gas exporting countries could suffer decline in revenues due to price erosion and/or supply displacement Global gas markets are likely to transition away from oil-indexed prices to competitively set prices and US LNG exports will hasten that transition Oil markets could also be affected due to gas substitution of oil for power generation 3

5 What triggered the Shale Gas Revolution? Source: Energy Information Administration based on data from various published studies Updated: May 9, 2011

6 Historical wellhead prices and shale gas production Source: U.S. Energy Information Administration (October 28, 2011). 5

7 Shale gas production compared to lagged price Correlation between price and production is.8! Prices pushed forward by 3 years Source: U.S. Energy Information Administration (October 28, 2011). 6

8 Key Lesson: North American natural gas market is highly dynamic Producers and consumers respond to price signals and anticipated market events to mitigate their price impacts. Strong market feedback. What is the best thing for high prices? What is the best thing for low prices? How might the market react to LNG exports? Producers (supply elasticity) Consumers (demand elasticity) 7

9 Integrated Models for Power, World Gas, Coal and Emissions North American Coal North American Gas British Columbia Prarie Canada British Columbia Alberta Western Canada Saskatchewan E. Canada Northwest Green River Basin Uinta Basin Southwest/ New Mexico NPRB SPRB Fort Union Northern Appalachia/ Pittsburg#8 Central Appalachia Southern Appalachia Huntingdon Kingsgate Monchy Emerson Pacific NW PGE SCG N Cal EOR SDGE Pacific NW Rocky Mtns So. Cal N. Great Plains Anadarko San Juan Permian Basin WNC Mtn Midwest WSC ENC Niagara ESC Ontario S. Atlantic Iroquois Mid Atlantic Appalachia NE Off-shore Atlantic Eastern Canada Gulf Coast/TX Mexico Gulf Coast Brit Col Alberta NPCC Quebec NPCC Canada East MAPP Canada MRO NPCC Ontario NPCC NEPCOL Northeast COB N CA Bay CA Pac NW S CA Ctrl CA N Nevada CMB Idaho S Nevada Utah Arizona Four Entitlement Hubs Montana Wyoming Colorado New Mexico MAPP US-West ERCOT West MAPP US-South SPP North ERCOT Nortla ERCOT Central MAPP US-East SPP ERCOT SPP South ERCOT South ERCOT Gulf Entergy North MAIN SOM Entergy Central MAIN WUM MAIN Entergy South TVA West ECAR Michigan ECAR ECAR West Southern West TVA North/ South Southern Central ECAR East TVA East NVPP West MAAC West VACAR South Southern East NOx SOx CO2 Hg MAIN NIL NVPP North FRCC North VACAR Central VACAR North FRCC South NEPOOL Southwest NVPP South MAAC East MAAC South FRCC MAAC 2 Latin America 3 Western Europe 5 Africa 6 Middle East 4 CIS and Eastern Europe 7 Mainland Asia 8 Pacific Rim and Australia NOx SOx CO2 Hg North American Electricity & Emissions World Gas Model 8

10 Reference Case Include High Gas Demand Growth It represents a rather conservative case in terms of assessing the impact of exports Source: Deloitte MarketPoint; Energy Information Administration 9

11 Projected Price Impact of LNG Exports (Real 2011 $) Source: Deloitte MarketPoint 10

12 Projected Impact is Highly Locational Focus on Henry Hub or Gulf supply prices will greatly overstate the impact Source: Deloitte MarketPoint 11

13 Key question: Will US supply be able to keep up with demand including exports? If no, the price will likely increase sharply until supply catches up with demand. Price volatility might also rise due to temporal tightness of supply-demand balance. If yes, price impact likely will be minimal. Price impact will be determined largely by the change in production cost of marginal field, which should be minimal given a flat supply curve. Recent history demonstrates how dynamic the market is.? 12

14 Study Analyzed the Impacts of US LNG Export to Different Destinations under Alternative Market Scenarios We analyzed two market scenarios regarding pricing by current major gas exporters: a Business-As-Usual scenario assuming they adhere to oil-price indexation and a Competitive Response scenario in which they make some volumes available on market-based prices. In both scenarios, new market entrants were assumed to competitively price their supplies. More detailed description of the scenarios and assumptions can be found in the report. No Export Case Asia Export Case (6 Bcfd) Europe Export Case (6 Bcfd) Business AsUsual Scenario No LNG exports from US/ Prolonged oil-price indexation 2 Bcfd each to Japan, Korea, and India/ Prolonged oilprice indexation 3 Bcfd each to UK and Spain/Prolonged oil-price indexation Competitive Response Scenario No LNG exports from US/More competitively priced supplies 2 Bcfd each to Japan, Korea, and India/More competitively priced supplies 3 Bcfd each to UK and Spain/More competitively priced supplies 13

15 U.S. LNG exports target large arbitrage opportunities Source: Federal Energy Regulatory Commission (FERC) 14

16 Global LNG Production Is Projected to Continue Strong Growth but Still Comprise a Fairly Small Fraction of Total Global Gas Supply 15 Source: World Gas Model Projections, October 2012 (No US Export)

17 Even in the Business-As-Usual Case, Japanese Gas Prices Are Projected to Moderate Source: World Gas Model Projections, October

18 Illustration of an Aggregate Supply Curve The structure of long-term gas contracts in some global markets implies a steep supply curve 17

19 Representation of Impact of Incremental Supplies on Prices More Supplies 18

20 Projected Price Change Due to LNG Exports Source: World Gas Model Projections, October

21 Bottom Line: US LNG exports could help gas importers and could hurt gas exporters Source: BP Statistical Review (2012) Source: GECF website. 20

22 Questions?

23 This publication is solely for informational purposes. Where the results of analysis are discussed in this publication, the results are based on the application of economic logic and specific assumptions. These results are not intended to be predictions of events or future outcomes. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this presentation. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Member of Deloitte Touche Tohmatsu Limited