LNG Exports
Introduction
• The shale gas revolution has changed the U.S. natural gas supply landscape
• The U.S. natural gas market is currently demand constrained – there is room for increased demand, including LNG exports, while maintaining stable, affordable natural gas prices.
• Global energy markets and capital markets will naturally limit volumes of LNG exports.
• Fears of price volatility and diversion of investment are unfounded – expeditious permit approval will allow U.S. companies to compete for a share of the global market and lead to job creation at home.
LNG Imports/Exports Worldwide
Qatar
Malaysia
Australia
Nigeria
Indonesia
Trinidad
Algeria
Russia
Oman
Brunei
UAE
Egypt
Yemen
Peru
Eq. Guinea
Norway
US
LNG Exports
Source: Waterborne LNG Reports, US DOE, PFC Energy Global LNG Service
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-6
-4
-2
0
2
4
6
8
10
1973 1983 1993 2003 2013 2023 2033
Fundamental Shift in Outlookame Change
Source: EIA, Annual Energy Outlook 2005 & 2013 Early Release
Natural Gas Net Imports(trillion cubic feet)
Imports
Exports
ProjectedHistorical
AEO 2005
AEO 2015
Actual
4
2010 2015 2020 2025 2030 2035 2040
-20
-15
-10
-5
0
5
10
15
20
25
30
LNG and Pipeline Exports
Source: EIA Annual Energy Outlook 2005 & 2015
Natural Gas Exports(billion cubic feet per day)
AEO 2005
AEO 2015 LNG
LNG Pipeline
Pipeline
Exp
ort
sIm
po
rts
LNG Export Study Comparison
Modeler Release Date
U.S. Natural Gas Supply
Assumption
LNG Exports Volume Range
(Bcf/d)Price Change from
Baseline Case
EIA October, 2014 Reference 12.0 - 20.0 $0.10 - $0.80
ICF May, 2013 High 4.0 - 16.0 $0.32 - $1.02
CRA February, 2013 Low 20.0 - 35.0 $1.60 - $3.10
NERA December, 2012 Reference 0.0 - 15.8 $0.00 - $1.09
Navigant January, 2012 Reference 0.9 - 6.6 $0.04 - $0.41
Deloitte 2011 Reference 6 $0.22
* Relative to EIA supply assumptions
LNG Exports
Sabine Pass (Cheniere)DOE: ApprovedFERC: Approved
Freeport LNG (FLEX Quintana Island)2 Separate FilingsDOE: Approved FERC: Approved
Lake Charles (Trunkline/Energy Transfer Partners, BG Group)DOE: Conditionally ApprovedFERC: Filed Cove Point (Dominion)
DOE: ApprovedFERC: Approved
Cameron (Sempra)DOE: ApprovedFERC: Approved
Coos Bay (Jordan Cove)DOE: Conditionally ApprovedFERC: Filed
Waiting all Final Approvals
Approved by FERC and waiting DOE Approval
Astoria (Oregon LNG)DOE: Conditionally ApprovedFERC: Filed
Elba Island (Southern LNG)DOE: Under ReviewFERC: Filed
Received Final Approval
Corpus Christi Liquefaction (Cheniere)DOE: ApprovedFERC: Approved
Carib Energy (Crowley Maritime Corp.)DOE: ApprovedWill provide LNG transport services
Meeting Global Demand
1. ICF estimate for year end 2011.2. FTA & non-FTA Applications to DOE as of Mar 31, 2014 3. Dec 2012 ICF estimate based on current worldwide project list.~Poten, BG Group, Credit Suisse, Facts GlobalSource: API, ANGA
0
20
40
60
80
100
120
140
Bcf
/d
Proposed U.S. Capacity 2
Under Construction, Planned & Proposed Non-U.S. World Capacity 3
Current World Capacity 1
Range in Projected Worldwide LNG Demand: 2020-2025~
Demand and Price ExpectationsComparison of Recent Annual Energy Outlooks (AEO)
Natural Gas Demand and Price: 2025
EIA has increased expected demand for year 2025 by 35% since the 2010 AEO release while expected 2025 prices have fallen 29%.This further supports the growing, abundant supply claim.
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1.00
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3.00
4.00
5.00
6.00
7.00
8.00
0
5
10
15
20
25
30
35
2010 2011 2012 2013 2014
Gas
Pri
ce $
/mm
btu
TCF
Liquefied Natural Gas Exports
Pipeline Exports
Lease and Plant Fuel
Pipeline Fuel
Transportation
Electric Power
Natural Gas to Liquids
Industrial
Commercial
Residential
Henry Hub
International Interest in U.S. LNG Exports
Select Natural Gas and Crude Oil Historical Prices
Source: Brookings Institute, “A Strategy for U.S. Natural Gas Exports”, June 2012
Historical price correlations have broken down since 2009, start of U.S. shale gas revolution.
Divergence between US, European and Asian natural gas hubs drives strong international interest in U.S. exports.
LNG Export Concerns• Fear:
– All proposed LNG export projects will be built and all built
capacity will be fully utilized
– Leading to high domestic gas prices and volatility
– Resulting in diversion of investment and job losses
• Truth:
– Abundant supplies and continued development will mitigate price
and volatility impacts
– Global energy markets and capital markets will limit LNG export
volumes
– Government intervention is counterproductive
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International Markets
• Short-term market risks:
– International LNG competition exists to capture LNG demand.
– Several Middle East LNG suppliers have marginal production
costs close to zero; but they limit demand by insisting on oil-
linked contracts.
– Once the U.S. enters the LNG export market, ME suppliers will
need to compete with the next marginal supplier, which will be
the U.S.
– To maintain/increase export volumes, they must compete with
next marginal supplier by lowering price
– International LNG prices expected to lower toward U.S. cost of
production (less transportation and liquefaction costs).
– This reduces incentive for U.S. LNG exports.
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International Markets• Mid to long-term market risks
– New pipeline capacity between Russia, Central Asia, South Asia
and China frees up more existing LNG cargos to go elsewhere.
– Global shale gas development commences.• Only Australia has announced drilling. But significant untapped reserves exist
internationally.
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CountryProduction
(TCF)Consumption
(TCF)
Proved Reserves
(TCF)
Recoverable Shale Gas
Resources (TCF)
China 2.9 3.1 107 1,275
United States 20.6 22.8 273 862
Argentina 1.5 1.5 13 774
Mexico 1.8 2.2 12 681
Australia 1.7 1.1 110 396
Canada 5.6 3.0 62 388
Libya 0.6 0.2 55 290
Algeria 2.9 1.0 159 231
Brazil 0.4 0.7 13 226
Poland 0.2 0.6 6 187
Source: EIA, 2011
Capital Markets
• LNG export facilities are capital intensive: $5-$10 billion
per project
• Each LNG export project will compete for financing
• Off-take contracts are required for financing
– 3.5 contracts typically needed to justify one LNG train1
– Challenge: Majority of projects sponsored by companies without
international LNG marketing experience.
• Context:
– 25 proposed LNG export facilities exist, if all were built at $5
billion/project the cumulative capital investment would be $125
billion.
– Capital investment in natural gas transportation and distribution
in 2011 totaled $21 billion.2
142. US Census, “Capital Expenditures Survey”, Feb 2013
Capital Markets
• Historical Example
– In the early 2000’s, it was expected that the U.S. would require
significant LNG import facilities.
– 47 facilities were proposed.
– 8 projects were built.
– Rise of U.S. shale gas and resulting lower prices rendered these
projects obsolete.
• Lesson: Market forces, not governmental intervention,
imposed limits on investment.
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U.S. LNG Export Price Components
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LNG Landed Prices and Cost of Delivered U.S. Exports
The U.S. domestic price is only one component of the total cost to export LNG from the U.S. Additional costs include: liquefaction costs, shipping costs and regasification costs.
Depending on destination, these additional costs can be 2 to 3 times the current U.S. domestic price.
Source: FERC
Estimated Dec 2014 ($/mmbtu)
0
2
4
6
8
10
12
14
LandedUK
LandedJapan
LandedChina
LandedIndia
U.S.Exports
Regasify Cost
Shipping Cost
Liquefy Cost
Henry HubPrice
What is the Government’s Role?
DOE EXPORT AUTHORIZATION
Applicant files an NGA § 3 application to export to FTA countries (immediately approved)
Applicant files an NGA § 3 application to export to non-FTA countries (DOE must make an affirmative “public interest” finding for each export application)
FERC FACILITY SITING AUTHORIZATION
Applicant requests approval to enter FERC’s pre-filing process at least 6 months prior to applying for authorization to site & construct export facilities
Pre-Filing Phase: FERC conducts scoping study with public consultation to prepare for its Nat’l Envtl. Policy Act (“NEPA”) environmental review
Applicant submits formal application
FERC issues a draft environmental study (either a full Environmental Impact Statement (“EIS”) orstreamlined Environmental Assessment (“EA”)) under NEPA
FERC solicits public comment and responds to comments
FERC issues a final EIS, if applicable
FERC approves or denies the project
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LNG Exports Promote Domestic Investment
• Jobs created from an LNG include direct
(construction/operating) and indirect (production) jobs.
For example, a 2 bcf/d export facility means:
– 3,400 construction jobs (spread over 20 year plant operating
period)
– 400 operations jobs
– 26,000 upstream and midstream natural gas jobs
• Export market for dry gas will promote continued
development/production, leading to NGL supply that is
promoting domestic manufacturing jobs
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Renewed Domestic Manufacturing
• Due to shale gas abundance, natural gas liquids (NGLs) have
seen increased supply and decreased prices on average.
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• Permitting LNG exports will drive demand for U.S.-produced dry natural gas and continued investment in overall production.
• This helps preserve low NGL prices that benefit the domestic chemical, fertilizer and plastics industries.
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1.50
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3.00
Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015
$/g
allo
n
Natural Gas Liquids: Nymex
Butane Propane
Ethane Natural Gasoline
Natural Gas Production Worldwide
0
5
10
15
20
25
United States Russia Iran Qatar Canada China Saudi Arabia
Top Natural Gas Producing Countries
Natural Gas Production
Source: EIA – International Energy Outlook 2013
Conclusion
• The shale gas revolution has changed the U.S. natural
gas supply landscape.
• LNG exports will have a positive impact on the economy
and the environment.
• The Federal government should move expeditiously to
allow U.S. companies to compete in the global LNG
market so the domestic benefits from export can be
realized.
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