Study: Exports will have significant impact on US natural gas price

Tugboats pull an LNG tanker to Cheniere Energy's Sabine Pass terminal in 2008. (Nick De La Torre / Houston Chronicle)

Henry Hub natural gas prices will become far more volatile and influenced by global market conditions once the United States begins to export liquefied natural gas, according to a study released by the PIRA Energy Group.

The New York-based energy market consulting firm concluded that although much attention has been focused on how exports will influence pricing in other parts of the world, the impact on domestic prices also will be significant.

Other studies have suggested exports won’t have a dramatic impact on U.S. prices. In January, the Deloitte Center for Energy Solutions predicted exports of natural gas would boost domestic prices only slightly, while lowering prices for Europe and other U.S. allies.

And a separate study commissioned by the Energy Department last year concluded that the United States would glean big economic benefits — with only modest natural gas price increases — from exporting the fossil fuel.

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The Energy Department so far has granted approval to just two companies, Cheniere Energy and Freeport LNG, to export domestically produced natural gas. And only Cheniere has received approval from the Federal Energy Regulatory Commission to build the facilities that will liquefy natural gas for overseas transport at its Sabine Pass terminal in Louisiana.

Energy Secretary Ernest Moniz told Congress Thursday the department would move quickly to process additional applications — 16 are pending to export natural gas to countries that don’t have free trade agreements with the United States, including Japan.

Moniz said those applications will be reviewed with a consideration of their cumulative impact on the market.

The PIRA Energy study, “Liquefied Henry Hub: The Repercussions of North American LNG Exports at Home and Abroad”, concludes that the more export capacity that is approved and built, the greater the pricing volatility will be.

It says U.S. liquefied natural gas exports are forecast to peak at about nine billion cubic feet per day by 2025.

“Depending on the degree to which this new form of demand is indifferent to North American market developments, the Henry Hub price ramifications will be substantial, at least in the short-term,” study author Mickey Kwong said in a written statement.

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The Henry Hub is a distribution hub on the natural gas pipeline system in Louisiana; natural gas spot and future prices set there serve as the benchmark for North America.

Traditionally, natural gas prices in North America haven’t been linked with those in the rest of the world, and natural gas here is currently far less expensive than it is in most other countries.

That’s a key driver behind the call for the United States to export natural gas. Other countries, particularly those in Asia, hope it will give them access to less expensive gas, and U.S. producers hope the new markets will drive up natural gas prices enough to make drilling more lucrative.

The PIRA study says issues ranging from Russian gas production to Japanese nuclear policy will have a direct impact on Henry Hub prices, much the way issues in the Mideast or West Africa influence crude oil prices.

“The changing dynamic in the market is that the fairly insular world of North American gas markets and Henry Hub pricing will be immediately exposed to supply, demand, inventory, and pricing issues in other parts of the world,” Ira Joseph, executive director of PIRA’s global gas group said. “These factors were previously insignificant or ignored entirely by North American gas trade.”

Read FuelFix coverage of the debate over exporting U.S. fuel:

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