US LNG exports: "Thinking the Unthinkable"

(Picture Credit: EMA)

Back in the early part of the 20th century, it was unthinkable that the US would one day be in the position to consider the possibility of exporting LNG. This was because the country was in the midst of a natural gas crisis characterised by a serious supply shortage and rising natural gas prices. Today, the US is in an enviable position with the advent of the North American shale gas evolution and low Henry Hub prices.

Dr Gal Luft, co-Director of the Institute for the Analysis of Global Security (IAGS) and Senior Adviser to the United States Energy Security Council, shared with delegates of the Gas Asia Summit the role of LNG in shaping the US energy landscape. He said the US is well-placed to play a major role in the LNG market as it is a leader in developing and producing shale gas, and has the added advantage of low natural gas prices and weak currency.

However, the prospect of the US’ LNG export case hinges on its ability to overcome regulatory hurdles and the diverse opinions from stakeholders who clearly have divided interests in this issue.

The US' LNG debate has ignited a discussion among stakeholders on the impact of price levels. Domestic gas intensive industrial users would clearly want the deal to fall through as LNG exports would mean a rise in natural gas price and take away their competitive advantage.

Security hawks are uncertain about whether this development would increase the US' dependence on external sources of gas. Environmentalists with the "not in my backyard mentality" can cast road blocks in the paths of energy infrastructure projects. Proponents such as natural gas producers and fiscal conservatives, and the coal and renewables sector, on the other hand, welcome this new development as it will pave the way for improving the trade balance for the US and reinstate Henry Hub prices to formal levels.

Regulatory hurdles would also need to be overcome due to the number of regulatory agencies involved and the permitting process could well become a protracted one taking as long as nine to 10 years, from design to commercial operation stage, including the time needed for the permits process.

Even if these hurdles are crossed, the debate continues about the future of shale gas. Many unresolved questions remain, including:

• Will shale gas continue to be solely a US phenomenon?

• How much of the US' shale gas is truly commercial?

• How will environmental challenges be addressed?

• Will the natural gas prices in the US continue to remain low?

• How much of natural gas will be exported?

• The 47GW question--Will Japan change its energy policy and reinstate its nuclear plans?

• How will competition from Malaysia, Indonesia, Australia, Papua New Guinea, and from new proposed LNG projects in Mozambique, Tanzania, Australia, Russia, Israel and Canada impact the US competitiveness?

• What will be the value of the US dollar?

• Will the US be perceived as a reliable supplier?

It is likely that the US will become a natural gas exporter, but it remains to be seen whether it will become an influential gas exporter over the coming decades or if domestic interests prevail. The Asian markets, in particular South Korea and Japan, will present tremendous LNG trade opportunities for the US. Despite these developments, natural gas will continue to be the most volatile commodity play.

By :Rachel Su Huifen, EMA