Rice study questions volume of future US natural gas exports

The long-term volume of natural gas exports, if allowed by the US government, likely will not be very large given expected market developments abroad, according to a researcher from Rice University’s Baker Institute for Public Policy.

Kenneth Medlock, a Baker Institute fellow and Rice adjunct economics professor, wrote a paper entitled “US LNG Exports: Truth and Consequence” that suggests LNG exports might not boost US gas prices as much as some other observers and studies already have suggested.

Cheniere Energy Partners LP announced on Aug. 9 that it was authorized to start construction of a $5.6 billion LNG export terminal in Sabine Pass, La. The plant will be built on the site of Cheniere’s LNG import terminal.

Cheniere’s export terminal is expected to be completed in 2015, and Cheniere plans to supply gas to Asian and European markets.

In his paper, Medlock said interactions between the US gas market and the market abroad must be considered, adding that US LNG exports will involve commercial risks.

“The question before [US] policymakers is one of licensing a capability, not licensing a fixed volume,” he said. Previous studies on how LNG exports might alter US gas prices have assumed a particular volume of LNG exports, but the studies did not allow for how market interactions might influence price movements and trade volume.

“The bottom line is that certification of LNG exports will not likely produce a large domestic price impact, although the entities involved may be exposed to significant commercial risk,” Medlock said. “As the story plays out, the international gas market will evolve into something dramatically different from what it is today.”

He said several factors could determine the future scale of potential US LNG exports, including elasticity of US gas supply, elasticity of gas supply outside the US, the role of short-term capacity constraints, the cost of developing and using export capacity, and the value of the US dollar.

There is no guarantee that LNG exports will occur in any particular volume, he said, adding US LNG exports must compete with LNG and pipeline gas supply from numerous sources, including Russia, Mozambique, Argentina, Canada, and Australia.