The likely impact of LNG exports from North America on wholesale gas prices around the world may put a cap on US exports at roughly 6 Bcf/d, Mike Fulwood, a principal in Nexant’s Global Gas practice, said Tuesday.

During a briefing on LNG exports at the US Energy Association in Washington, Fulwood said that the authority to export 9.3 Bcf/d of LNG to non-free trade agreement countries — granted by the US Department of Energy to seven US projects — is already in excess of projected demand for the world gas market.

In a case study on the impact of North American LNG exports, Nexant’s World Gas Model predicted that spot gas prices in the global market would begin to converge, capping the amount of LNG that could be economically exported from the US, Fulwood said.

The WGM uses data and assumptions from the International Energy Agency, the US Energy Information Administration and other sources to project supply and demand balances, international gas trade flows by pipeline and LNG, and contracted and spot gas prices, according to Brian Little, also a principal in Nexant’s Global Gas practice. During the briefing, he described the WGM as a “scenario tool” that can provide national, regional and global outlooks for the gas industry through 2040.

Based on projections for when US and Canadian export terminals would come online, the model forecast a sharp rise in LNG exports from the region in 2020, tightening the North American market but increasing supply capacity into markets in Asia and Europe. Fulwood said this would put downward pressure on prices in the latter markets.

Japan’s spot price and the UK NBP price would likely fall, while the US’ Henry Hub price would rise from about $4/MMBtu to around $5-$6/MMBtu in 2020, Fulwood said.

If the difference between Japan’s spot price, as an example, and the Henry Hub price was not sufficient to cover shipping costs and the regasification process, US exporters would have no incentive to continue pursuing sales agreements with Japan, Fulwood said.

He said economics thus may mandate “a cap on the exports going out of the US, because of the pricing effects” at around 6 Bcf/d, to stave off price convergence that would make spot transactions unattractive.

The case study assumed two Canadian terminals and five US terminals were online. Fulwood said bringing additional terminals online would not impact the pricing effects, as the economics would still limit the volume of exports.

Source: Platts, McGraw Hill Financial