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Gas Exports from the US. Status, Potential and Consequences

Term Paper 2014 20 Pages

Economics - International Economic Relations

Excerpt

Agenda

1. Introduction
1.1 The Golden Age of Gas
1.2 Ukrainian Crises and Europe's Dependence on Russian Gas

2. Target and Expected Results

3. Analysis
3.1 LNG on the Fast Track
3.2 Existing LNG Terminals in the US
3.3 Key Player(s) in the US LNG Export Industry
3.3.1 Cheniere Energy Inc
3.3.2 Others
3.4 Softened Export Bans and Exclusive Free-Trade Partners
3.5 The Impact of LNG Exports on US Natural Gas Prices

4. Evaluation of the Exported Amount and Price Influences

5. Conclusion and Outlook

6. Critical Review

7. References

Abstract

The discussion whether the US is about to export more natural gas and if yes, to what extent, is more topical than ever. Due to the shale gas boom at the end of the last decade, the US has more access to natural gas resources than ever before. Furthermore, the current dispute between the Ukraine and Rus- sia are revealing once again Europe ’ s dependence on Russian gas and show the need for further diversification of Europe ’ s natural gas supply. This paper evaluates the status, potential and consequences of US gas exports in the form of LNG from a general perspective. The author analyses the potential of LNG and the status quo of US LNG facilities and relevant key players. Addi- tionally, he takes a closer look on US export bans as well as current prices and how growing US gas exports would affect the domestic and interna- tional gas markets. He finds that further permits to export natural gas are likely to be authorised, but due to higher prices and increasing demand, these exports will mainly go to the Asia-Pacific region. Nevertheless, the growing LNG market in the US will make the future gas markets more flexi- ble and competitive.

Abbreviations

Abbildung in dieser Leseprobe nicht enthalten1

1. Introduction

There are two main aspects which are making the discussion about US gas exports currently relevant. First of all, there is a huge availability of unconventional natural gas resources within the US territory and increasing permits to export this gas in the form of liquified natural gas (LNG) (U.S. Energy Information Administration, 2013). This export is predominantly supposed to be accomplished through LNG terminals along the US east and south coastline. The only prob- lem; a couple of years ago, these terminals were built primarily to import LNG, not to export it (Barlas, 2012; MarketWatch: Energy, 2007; Urban, 2008). However, the recent developments in the US gas market, especially regarding shale gas, almost dispense with the need for imports. To put it another way, there are projections that US natural gas imports, which today are mostly coming through pipelines from Canada (BP, 2013), are about to decline to almost zero percent in the years to come (U.S. Energy Information Administration, 2013). Second of all, there are, yet again, fears regarding Europe’s dependence on Russian gas (Morbee and Proost, 2010). The former and the current Ukrainian crisis and the cry for help from some European politicians show once again the topicality of the issue. Nevertheless, high prices in the Asia- Pacific region indicate otherwise. Therefore, the big question for the US is; Where to put all its natural gas?

1.1 The Golden Age of Gas

In the World Energy Outlook - Special Report on Unconventional Gas from 2012, the Interna- tional Energy Agency (IEA) pointed out that we are entering a golden age of gas. However, this happens only on condition that we exploit the tremendous resources of unconventional gas - shale gas, tight gas and coal bed methane - in a profitable and environmentally acceptable manner (IEA, 2012b). Certainly, there are serious environmental and social concerns regarding the extraction of these unconventional gas resources (Colborn et al., 2011; Fischetti, 2013; Food & Water Europe, 2012). Whatever the circumstances are, these concerns and discussions, although important, are not part of this paper. Due to Boersma (2012), the development of the US “shale gas revolution” starting somewhere around 2008 was twofold. First, there was a huge technological boost which made horizontal drilling initially possible. Combining this possibility with a high pressure injection of a cocktail of water, chemicals and sand (“hydraulic fracturing” or “fracking”) led to the development of large volumes of methane. Second, the relatively high price for natural gas in the global markets sent the right signals to industry to exploit shale gas and therefore apply the new technologies on a comprehensive basis (Boersma and Johnson, 2012). In other words, “Access, higher prices, and advances in technology have made it possible to commercially develop unconventional gas resources” (Verrastro and Branch, 2010). Addi- tionally, the access to cheap working capital is unabated since 2008, especially within the oil and gas service sector (PwC, 2013). Therefore, it must be assumed that the development was rather threefold than twofold. However, as shale gas is the main driver in the US gas market nowadays, technically recoverable shale gas resources in the US amount to roughly 900 trillion cubic feet (tcf) and production has almost increased tenfold since 2006 (Figure 1), a stronger research focus on how to deal with these enormous resources in the long run is therefore nec- essary.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1 - U.S. shale gas production from 2005 to 2012 with projections to 2040, according to: U.S. Energy Information Administration, 2014, MT-23

The U.S. Energy Information Administration (EIA) (2013) projects, under a certain scenario, that the total production of natural gas in the US will overtake the domestic consumption sometime around 2020 (U.S. Energy Information Administration, 2013). Already today, the US produces more natural gas than the Russian Federation (BP, 2013). That this development has a strong impact on domestic gas prices, especially for industry processes, heating and increasing elec- tricity production from gas instead of coal is therefore uncontroversial. What to do with these tremendous gas resources, especially regarding the US, will be analysed and evaluated later in this paper.

1.2 Ukrainian Crises and Europe's Dependence on Russian Gas

The conflicts between the Ukraine and Russia in 2006 and 2009 led to increasing political con- cerns regarding Europe’s dependence on Russian gas (Morbee and Proost, 2010). In 2010, al- most 30 percent of Europe’s natural gas supply was still coming from Russia (Figure 2). Half of it is flowing through pipelines crossing Ukraine (Williams, 2014b). Therefore, the current Ukrain- ian crisis brought Europe's dependence on Russian gas once again back on today’s agenda. However, strenuous efforts were made to change this situation. “Since 1990 there has been an impressive reduction in the relative dependence of the EU on Russian gas and the volumes im- ported from Russia have not grown since 2000” (Noël, 2009). Alexander Medvedev, CEO of Gazprom1, recently stated that the latest contentions between Russia and the Ukraine should not lead to a gas shortage in Europe. "We have no other interest other than fulfilling our com- mitments. We are heavily dependent on revenues from Europe” (Alexander Medvedev) as quoted in (Williams, 2014b).

Abbildung in dieser Leseprobe nicht enthalten

Figure 2 - EU27 - according to: Gas Imports from Russia, Source: Bundeszentrale für politische Bildung, 2012

Zsolt Hernádi, Chairman-CEO of MOL1, recently said that “...Europe can’t avoid imports of Rus- sian oil and natural gas in the short term” (Gulyas, 2014). He reckons that alternative sources and LNG imports from the US would not be ample enough. A senior executive from BG Group2 agrees and states that first US LNG shipments are still two years away (Williams, 2014a). Whether US LNG exports to Europe are likely to occur under given circumstances will be ana- lysed and evaluated later on.

2. Target and Expected Results

This paper tends to take a closer look on the status quo of US natural gas exports, as well as the potential and the consequences for the domestic market and the international natural gas mar- kets in general. The following part is constructed similar to a market analysis. The analysis is divided into five subchapters. The first subchapter gives a short overview of the current devel- opments within the LNG market and highlights the importance of LNG for the US natural gas export industry. The second subchapter examines US’ existing LNG terminals and terminals un- der construction or modification. There won’t be any assessment of other necessary infrastruc- ture (e.g. pipelines, vessels, power plants etc.). A special focus is set on one export or liquefac- tion terminal currently under modification. The third subchapter goes into relevant key players and highlights the position of a fairly unknown newcomer. Subchapter four attends to the ex- port bans regarding oil and natural gas set by the US administration and finally to future price developments in subchapter five. The evaluation emphasizes on the importance and conse- quences of additional permits to export natural gas on a big scale. The permit is the first step, which is then followed by economical decisions. However, these economical decisions strongly depend on gas prices in different regions of the world. Finally, the conclusion and outlook point out that US natural gas exports are likely to occur, but aren’t a quick cure for Europe’s depend- ence on Russian gas.

[...]


1 MBtu stands for one million British thermal units. MBtu is occasionally expressed as MMBtu, which is intended to represent a thousand thousand British thermal units. (Source: www.energyvortex.com/energydictionary/british_thermal_unit_%28btu%29__mbtu__mmbtu.html)

1 Gazprom is a Russian company and the largest extractor of natural gas as well as one of the largest companies in the world. It’s predominantly owned by the Russian government (50.01%). (Source: Wikipedia)

1 The MOL Group is an integrated oil and gas group in Hungary. In addition to Hungary, the company is present in the Europe, the Middle East and Africa region, as also in the CIS countries, with interests in exploration, production, refining, marketing and petrochemicals. (Source: Wikipedia)

2 The BG Group is a British multinational oil and gas company headquartered in Reading, United Kingdom. It has a major Liquefied Natural Gas (LNG) business and is the largest supplier of LNG to the United States. (Source: Wikipedia)

Details

Pages
20
Year
2014
ISBN (eBook)
9783656968580
ISBN (Book)
9783656968597
File size
589 KB
Language
English
Catalog Number
v300284
Institution / College
Karlshochschule International University
Grade
1,0
Tags
Energie Gas Energy LNG Shale Gas Schiefergas Natural Gas Erdgas

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Title: Gas Exports from the US. Status, Potential and Consequences