U.S. shale gas exports are upon us. The Asia Vision LNG tanker will depart from Cheniere’s Sabine Pass terminal within the next week or two, marking the first deliveries of seaborne gas from the lower 48 states. The 160,000 cubic meter cargo, likely bound for South America, enters a global market that is not particularly hungry for more supply. To be sure, the commercial floor is slowly slipping out from beneath prospective exports, joining an environmental foundation that was already under fire.
Briefly surveying the scene, export conditions show little promise in 2016 as well as toward 2020. Only slight growth is expected in major mature markets in Northeast Asia, which together account for 44 percent of demand, and growth in South Asia and the Middle East is simply not strong enough to absorb the mounting supply overhang. Consequently, prices are tanking; Asian and NBP spot prices are projected to hover in relative parity around $4.5-6.0/MMBtu this year. Competition – both seaborne and piped – will be stiff from nearly every corner of the globe.
Domestically, both conventional and unconventional production is in decline. A price turnaround is imminent, but it is unlikely to occur at a rate or veracity sufficient enough to meaningfully offset decay in the short-term. As such, LNG export projections of 10 and 15 percent of supply by 2020 and 2030 respectively make less and less sense. Still, the economic and geopolitical potential remains significant enough not to ignore. Further, as prices converge, the cost of allowing exports is effectively reduced to a non-issue. The U.S. will have a role to play – albeit smaller than hoped initially – in shaping a new, flexible era of gas trade.
But what can be said of the subsequent environmental toll? All things considered, it’s mostly neutral to mildly positive, though with some caveats.
Jumping ahead, and perhaps suspending reality, let’s assume exports stick to the EIA’s reference case, or reach approximately 6 billion cubic feet per day (bcfd) by 2020 and more than 9 bcfd in 2030. This would require greater production, but not considerably so; the U.S. will produce as much natural gas in 19 years as it would have otherwise in 20. That’s not to discount upstream concerns like aquifer contamination, wastewater disposal, and impacts to infrastructure, which will amplify as production moves outside of its traditional areas – see California – but to highlight the minimal impact exports will have on the broader production profile.
Downstream, exports will lead to decreased domestic and power sector gas consumption. Between 2008 and 2012, large-scale fuel switching from coal to natural gas led to a reduction of CO2 emissions in the power sector of roughly 300 million tons. More specifically, the spread of natural gas generation accounted for about 45 percent of the decline in coal, with much of the rest attributed to declining demand, and only a small share to renewables.
Conversely, natural gas reallocated to exports will largely be replaced by coal, resulting in as much as 2 million tons of additional GHG emissions for each 1 bcfd in exports, and briefly prolonging coal’s inevitable exit from the domestic generation profile.
And therein lies the primary concern; that – despite its potential to reduce GHG emissions globally – by committing to LNG exports and the necessary infrastructure and capital outlays, we postpone a greener future for a longer bridge; or that the political will is just not there yet for renewables or the climate. And that’s largely the truth. However, until fossil fuel externalities are properly valued, a bridge will have to suffice.
By Colin Chilcoat of Oilprice.com
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