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Exporting the American Renaissance

Global impacts of LNG exports from the United States


In a startling about-face, natural gas market forces reversed course over the past several years. Expectations that the U.S. would become a major importer of liquefied natural gas (LNG) have been replaced by the possibility of the U.S. becoming a major LNG exporter. As a result of a largely unforeseen surge in shale gas production, North American natural gas prices collapsed from over $10 per million British thermal units (MMBtu) in 2008, to under $3/MMBtu at various times during 2012. However, gas prices in Asia and Europe remain strong, creating huge spreads above U.S. prices.

Large price spreads between the U.S. and other regions have enticed foreign buyers seeking lower cost gas to consider U.S. supplies, while U.S. producers yearn for higher prices seen in foreign markets. As a result, U.S. LNG project developers seeking to arbitrage the large price spreads have submitted about 20 LNG export projects to the U.S. Department of Energy for approval. The proposed projects represent approximately 27 billion cubic feet per day of LNG export capacity.

Each world-scale LNG plant requires a multi-billion dollar investment to build, and given the enormity of the capital needed for development of U.S. LNG export facilities, project developers, regulators, and natural gas producers are keenly interested in understanding the potential impact of LNG exports on U.S. and worldwide natural gas markets. Clearly, not all or perhaps even a majority of the proposed projects are likely to come to fruition. But what would the impact be if the U.S. exported a significant volume of LNG?

While much attention has focused on the impact of U.S. LNG exports on the U.S. market, this study also specifically analyses the potential economic consequences of those exports on global markets. It attempts to estimate the potential price impacts, gas supply changes, and flow displacements if the U.S. exported a given volume of LNG to either Asia or Europe.

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