LNG 17: Top US consultant illustrates redrawn map for global gas business

HOUSTON -- At LNG 17’s Wednesday spotlight session on “The Global Outlook for LNG,” Cambridge Energy Research Associates (CERA) Chairman and award-winning author Daniel Yergin discussed how the LNG industry in North America and around the world has evolved and continues to change. 

LNG 17 is the 17th incarnation of the global LNG industry’s premier conference and exhibition, which makes its Houston debut from April 16–19 at the George R. Brown Convention Center.

“The map of LNG is being redrawn, and you are the ones who are redrawing it,” Mr. Yergin said, addressing the audience. “The US was destined to be a major importer of LNG, but things have really turned around” with the advent of the shale gas boom in North America.

Also, “the US is home to some of the most important technologies shaping this industry,” Mr. Yergin noted.

Mr. Yergin posed many questions to the assembled crowd, including “What is shale gas isn’t just a North American phenomenon?” as well as what might happen in the scenario of a gas export surplus. In the latter case, “Would traditional pricing relationships break down?” Mr. Yergin posited.

An important part of LNG 17 is to answer the question, “To what degree will the LNG industry be reshaped” by these events and scenarios, Mr. Yergin said.

Mr. Yergin also spoke of the strong potential for gas to increase in importance as a transportation fuel and as a source of electricity generation, although he noted that competition from low-cost coal in the power sector will be formidable. Overall, however, Mr. Yergin said, “We are optimistic for the global gas market,” with 620 billion cubic feet per day (Bcfd) of demand forecast for 2040.

According to Mr. Yergin, one of the greatest risks for the LNG export industry is localization—i.e., the development of local gas resources reducing import demand from major producers. Cost, which Mr. Yergin called “the Achilles’ heel of LNG development,” poses additional challenges. The cost of developing a greenfield LNG terminal has doubled or even tripled since 2005, according to Mr. Yergin, and this will become an increasing focus of discussion in the US and Canada.

In the US, at least 30 LNG export applications have been submitted for review, although only a few of these plants will be built, Mr. Yergin acknowledged. The major market constraint in North America is demand, not supply. Whether or not the supply chain will be able to deliver is a question of equipment and personnel, he said.

However, high development costs could deter investors long before Henry Hub gas prices increase, the CERA chairman warned. “People will not casually commit to such high-cost projects,” said Mr. Yergin, adding that IHS Inc. (of which CERA is a part) foresees 8 Bcfd of North American LNG exports by 2030, although this number could rise.

The North American gas industry will change the LNG business model to some degree, Mr. Yergin noted in the conclusion to his speech, whether it is through the price of feedstock (i.e., shale gas) or LNG export pricing. This will stimulate new pricing benchmarks at the same time as countries in the Middle East and the Commonwealth of Independent States (CIS) work to establish their own.

Henry Hub will establish a different, but not necessarily lower, pricing system against which others will have to compete, Mr. Yergin said.

By Adrienne Blume, Managing Editor

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