The Impact of US LNG Exports on India’s Gas Market
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The Impact of US LNG Exports on India’s Gas Market Jason Bordoff November 30, 2016 Delhi, India
Transcript of The Impact of US LNG Exports on India’s Gas Market
The Impact of US LNG Exports on India’s Gas Market
Jason Bordoff
November 30, 2016Delhi, India
US Natural Gas Outlook
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US Shale: There Will Be Gas
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US Dry Gas Production Under the EIA’s Reference Case Scenario Bcf/day
Source: IEA Medium-Term Gas Market Report 2016
0
30
60
90
120
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 2032 2035 2038
AlaskaCoalbed methaneLower 48 offshoreOtherTight gasShale gas and tight oil plays
ProjectionHistory
Source: EIA Annual Energy Outlook 2016
Turnaround in US Natural Gas Outlook
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AEO 2005 US Net Natural Gas Imports Trillion cubic feet
AEO 2016 US Net Natural Gas Imports Trillion cubic feet
0
2
5
7
9
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
Net Pipeline ImportsNet LNG Imports
-8.00
-6.00
-4.00
-2.00
0.00
2.00
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
Net LNG ImportsNet Pipeline Imports
Source: EIA Annual Energy Outlook 2005 and 2016
The North American Shale Gas Resource Base Is Huge
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US Natural Gas Supply Curve, Henry Hub Breakeven Price Trillion cubic feet, $ per MMBtu
Source: IHS
-12
-9
-6
-3
0
3
6
9
12
0 500 1,000 1,500 2,000
830 Tcf at < $3 per MMBtu
1,400+ Tcf at < $4 per MMBtu
Marcellus/Utica to Account for Bulk of Gas Production Growth
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US Dry Gas Production by Area Bcf/day
Source: IEA Medium-Term Gas Market Report 2016
US Energy and Climate Policy Entering Uncertain Period
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“Under my presidency, we will accomplish complete American energy independence.”
An “America First” energy plan...
Told New York Times he would be willing to ban the import of Saudi oil to the United States
“We’re going to cancel the Paris Climate Agreement”
“We’re going to rescind all the job-destroying Obama executive actions including the Climate Action Plan”
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Key Energy and Climate Policy Issues to Watch Clean Power Plan Unlikely to survive post-election; main tool to fulfill promise to boost coal
Domestic shale regulation Regulation of new and existing wells (e.g., methane) likely to be loosened
Fuel economy standards Standards up for midterm review in 2018; possibility may be weakened
Energy exports Anti-trade rhetoric and environmental activism pose downside risks
Renewable investment and production tax credits (ITC/PTC) Main federal support scheme for solar and wind energy has bipartisan support
Paris climate agreement Has promised to “cancel” it; more recently “open mind”. US engagement at risk.
Leasing on federal lands, pipeline permits, etc. Expansion of oil, gas and coal leasing; Arctic drilling possible; pipeline push
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CPP Impact Only Significant Post-2020 In Any Scenario
0
1,500
3,000
4,500
6,000
2020 2030 2040 2020 2030 2040
1,3741,088836
1,204973
830
1,9421,7021,2011,7841,4711,185
9199721,3881,3641,4221,416
Coal Natural Gas Nuclear Renewables Other
Without CPP With CPP
• CPP compliance period only to start in 2022, repeal would only have measurable impact on U.S. electricity mix post-2020
• CPP removal could hit gas more than renewables, coal-fired generation may be the main beneficiary
U.S. Net Electricity Generation by Source With and Without the CPP (EIA AEO 2016 Reference Case) TWh
Opposition to Fracking and Pipelines Is Not Going Away
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2015 2016
51%
40%
Opposition to “Fracking” in the US
Source: Gallup
Do you favor or oppose hydraulic fracturing or "fracking" as a means of increasing the production of natural gas and oil in the US? 2015 2016Oppose 40% 51%Favor 40% 36%No opinion 19% 13% Americans in favor of "fracking" in the US, by political party 2015 2016
Republican 66% 55%Independent 35% 34%
Democrat 26% 25%
Global Gas Market Impact of US LNG
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US and Australia Dominate LNG Export Capacity Additions
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Projected LNG Export Capacity in 2021 Bcf/day
Source: IEA Medium-Term Gas Market Report 2016, company disclosures
0
3
6
9
12
Australia Qatar US Malaysia Indonesia Algeria
Series1Sabine PassFreeportCove PointCameronCorpus Christi
0
15
30
45
60
Capacity in 2015 Australia Capacity in 2021
LNG Export Capacity Growth Between 2015 and 2021 Bcf/day
Source: IEA Medium-Term Gas Market Report 2016
US LNG Export Capacity Ramping Up
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US LNG Export Capacity Under Construction, Commissioning, and in Operation Bcf per day, as of 10/31/2016
Source: Company disclosures
• 8.6 Bcf/d of US export capacity in operation, commissioning or under construction
• Offtakers are under no obligation to lift physical LNG volumes
• Export decisions will likely be based solely on variable costs
• Curtailments of US export capacity can (and most likely will) happen in medium-term
0.0
4.5
9.0
13.5
18.0
Asia (via Suez) Asia (via Panama) Europe
US$ 4.26US$ 4.62US$ 5.23
US$ 7.15US$ 7.15
Henry Hub15% HH surchargeCanal tollVessel charterFuel costPort / insurance / otherRegasJKMNBPLanded cost of US LNG
If You Build It, Will They Come?
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Main conclusions of a recent CGEP paper on US LNG competitiveness: • US LNG export decisions will likely be based on variable costs • The arbitrage window (on a variable cost basis) is open, but margins were fairly tight in most of 2016 • Even small changes in a number of variables can, at times, render US LNG exports uneconomical • Full utilization of US export capacity seems unlikely, especially if overseas spot prices remain at today’s lows
Delivered Cost of US LNG in Asia and Europe as of 11/21/2016, $/MMBtu
Source: CGEP estimates, Platts
Main assumptions: Henry Hub gas price at $2.8 per MMBtu (spot price as of Nov 21, 2016), vessel capacity at 145,000 cubic meters, vessel charter rate at $40,000 per day, bunker fuel cost at $300 per ton, journey times (one-way) at 33 days, 22 days and 11 days, respectively.
Gas Market Impact of US LNG
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• US LNG flexibility will undermine oil price link and the pricing power of established exporters
• Gas supply glut combined with US LNG flexibility is creating a buyers’ market
• US LNG can cap spot gas prices overseas (as long as the market is oversupplied and the US is the marginal supplier)
• Helps the creation of more efficient gas markets based on gas-to-gas competition
“We believe that US exports will effectively set Henry Hub as a key driver of European gas prices and weaken further their historical dependency on oil formulas.”
Global Gas Prices Have Dropped Significantly Since 2015
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Gas Prices in Asia, Europe and the US $ per MMBtu
Source: IEA Medium-Term Gas Market Report 2016
• The gap between US and overseas gas prices has narrowed significantly • Global LNG glut and growing gas market competition will likely keep prices low for some time • Recent price spikes driven by temporary factors (unplanned nuclear outage in France, Korea)
Geopolitical Impacts of US LNG
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• Greater optionality and supply diversity (e.g. Lithuania, Poland) = energy security
• Increased negotiating leverage with dominant suppliers
• Greater flexibility than pipeline gas supply
• Cheap LNG gives further impetus for EU gas market integration
• The EU needs more investment in infrastructure, reverse flow capability, interconnectors, storage The Independence FSRU helped Lithuania’s gas utility
negotiate a ~23% price discount with Gazprom
Flexible Supply Meets Price Sensitive Demand?
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Destinations of US LNG Export Cargoes to DateAs of September 30, 2016
• 4 of the total 33 LNG cargoes delivered from Sabine Pass through 9/30/2016 went to India • US LNG is among the most flexible sources of LNG globally • Most of India’s LNG demand is highly price sensitive – will the two meet in the future?
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India Is Emerging as a Major Global LNG Importer
Japan
S. Korea
China
India
Taiwan
Spain
UK
0 23 45 68 90
• India was the world’s 4th largest LNG importer in 2015 • India was among the biggest drivers of global LNG demand • LNG imports increased 15% in 2015, on track to grow 16% in 2016, driven by low LNG prices
Source: GIIGNL
The World Top LNG Importers in 2015 Million tons per year (Mtpa)
Source: Citi Research
Monthly LNG Imports in India Million tons of LNG
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India’s LNG Demand Growth Potential Is Very Significant
• Citi Research estimates that Indian LNG demand can grow ~14 Mtpa using existing plants and infrastructure (mainly in power generation, fertilizers, petchem and refining)
• Another ~30 Mtpa can come with smart cities, new downstream projects, balancing need for renewables and new infrastructure in a high case scenario
• Most of the additional demand (especially in power) is also highly price-sensitive
• High-case could propel India ahead of South Korea in LNG imports
The World Top LNG Importers in 2015 Million tons per year (Mtpa)
0
15
30
45
60
2016 2020
29.9
13.8
Source: Citi Research
Base caseHigh
case
Floating Regasification Can Add Flexibility to the Demand Side
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0
3
6
9
12
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
• US LNG increases flexibility on the supply side, FSRU technology does so on the demand side
• Low-cost solution for developing countries to access global LNG market on a seasonal / on-demand basis
• Flexible FSRU technology can be advantageous for India, given the price-sensitive nature of demand and need for additional import capacity
Floating Regasification Capacity By RegionBillion cubic feet per day
Source: EIA International Energy Outlook 2016
Natural Gas Can Reduce Local Air Pollution Dramatically
Source: EPA AP-42 Compilation of Air Pollutant Emission Factors; CenSARA Area Combustion Emissions Inventory Enhancement Project – Final Report 2011
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Comparison of Emissions from Different Fuels in Commercial and Residential Use Emissions per BTU, coal = 100%
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25%
50%
75%
100%
NOx SOx PM 2.5 CO2
CoalNo. 6 OilNo. 2 OilNatural Gas
• Lower CO2 emissions is not the only advantage of gas over coal and petroleum fuels • Switching to natural gas can dramatically reduce air pollution thanks to much lower NOx
and zero SOx / PM emissions
For more information contact Jason Bordoff Professor of Professional Practice in International and Public Affairs Founding Director, Center on Global Energy Policy Columbia University
[email protected] (212) 851-0193
Thank you!
