LNG Exportation: If achieved, exports of natural gas the U.S has the potential to lower its financial deficit nationally, and create thousands of jobs along the south, east coast and Alaskan coast. Although the economics seem positive nationally, the effects will be felt more localized rather than the nation as a whole with some drawbacks.
LNG U.S Projections
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Dry natural gas production has increased 63 percent from 1983 to 2015.
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Caused numerous proposed LNG import terminals to be scraped, or abandoned all together.
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29 proposed or approved North American LNG import terminals as of 2006, only 11 were built as of 2013, and only 2 proposed as of April 2015.
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22 LNG export terminals have been proposed, with potentially 28 new LNG export terminals following.
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Under the assumption that 2010 drilling rates continue, and mean resource estimates continue, MIT’s analysis estimates that in the U.S gas production rates (billion cubic feet/day) by 2015 as follows: Marcellus, Haynesville, Woodford, Fayetteville, Barnett potential of producing 23,17, 9, 7, 4 bcf/day respectively
LNG Value-Chain
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According to Oxfords LNG Plant Escalation, a complete facility normal cost is US$ 1000-1200/tpa, while the liquefaction only is US$ 600-800/tpa. For high cost facilities a complete facility costs US$ 1400-1800/tpa, while liquefaction only costs US$ 1000-1200/tpa.
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These are merely estimates; a cost estimate for a plant needs to be based on specifics for the set project, as ‘no two plants are ever created equal.’
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As facilities are constructed several LNG carriers need to be purchased, ranging between $160-200 million, with the capability of carrying about 2.6-2.8 bcf of natural gas. With cost variation depending on the size of the tanker needed.
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Transportation also has a major impact on the total capital cost.
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Within our proposal to provide LNG to developing countries one way to account for the number of carriers needed.
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LNG carriers typically have designated speeds of 17 to 20 knots. Therefore, the number of ships required for 1 mtpa can be estimated by:
n=L*5000+. 25,
Where n = the number of ships and L = the one-way distance in nautical miles.
Capital Costs
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According to Dr. Foss of The University of Texas at Austin Center for Energy Economics, the LNG value chain goes as follows:
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Exploration & Production
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$0.5-$1.9/MMBtu
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Liquefaction
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$0.8-$1.20/MMBtu
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Shipping
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$0.4-$1.0/MMBtu
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Regasification & Storage
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$0.3-$0.5/MMBtU
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With a total of $2.00-3.70, varying with shipping distances.
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A regasification terminal that would be applied to any developing country cost can be broken down into components:
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Operation and maintenance cost of $.20/MMBtu
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Fixed capital cost of $0.46/MMBtu
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*Assume
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40% capacity utilization factor
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1.5% LNG loss in regasification
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NERA’s LNG Export shows that specific cost of LNG from the Gulf Coast to developing countries such as China and India go as follows:
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Regas to city gate pipeline cost: $1.50 $/MMBtu
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Regas cost: $0.88 $/MMBtu
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Shipping cost: $2.87 $/MMBtu
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Wellhead to liquefaction pipeline cost: $1.00$/MMBtu
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Total LNG transport cost = $8.39 $/MMBtu
Economical Benefits/Concerns for the U.S
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A Department of Energy (DOE) Export Study The Hamilton Project, shows that at the rates provided above, producers should make $80-$90 million in sales.
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In effect however, this will drive up local costs, lowering domestic consumption,
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Effectively lowering projected sales by about $5 million.
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In so doing, more natural gas will in turn be available for exportation increasing sales.
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By allowing one billion cubic feet to be traded the DOE estimates a net annual value of about $390 million.
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If the total around traded via exportation were increased from one billion to six billion the net annual value would reach upwards to $3.2 billion towards the economy. Strengthening the economy nationally and locally.
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Overseas sells also offer higher gains than natural gas being sold domestically, and new dry gas productions.
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Although overseas has high yields, domestic economics will suffer due to lower consumption, as less revenue is generated locally.
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The Sierra Club noted on the DOE study that U.S LNG exports will in turn drive up gas prices, and will continue to increase with increasing volumes exported.
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Concluded that there are far too many risks with the economics (ie. lower and middle class citizens get left behind while wealthy owners of gas companies thrive.)
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One LNG benefits is the increase in local jobs that LNG facilities offer.
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Oregon’s LNG project in fact is projected to export 1.3 bcf/day, create 3,000 construction jobs for five years, and 7,000 indirect jobs for five years.
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Furthermore, Cheniere’s LNG facility is projects 2.2 bcf/day, creating 3,000 jobs.
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If both these projects were brought to the 6 bcf/day standard nearly double the jobs would be produced. The overall consensus is that if exports do occur additional jobs will be produced from gas production, terminal construction, operating the facility.
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Another rising issue is that the rise in gas prices will eliminate jobs in high-energy dependent manufacturing industries.
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According to NERA, only sectors benefited by exports (gas production and terminal construction) will experience an increase in labor incomes.
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All other sectors will suffer a loss of labor equivalent of 36,000 to 270,000 jobs per year.
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Other related issues include the risks involved with new projects in developing projects include:
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Finding well estblished sponsors with superior credit ratings, rather than those with sub-par credit.
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Establishing committed long term contracts with spot cargo capacity versus short questionable contracts.
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Finding familiar sponsors with good history versus no history.
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Including several others which in turn makes it hard for large corporations to join.
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Despite concerns from The Sierra Club, NERA’s LNG Export study shows with future projections in place:
Based on MIT & EIA projections on gas supply increasing and under a low natural price case exportation of LNG will be feasible. Although if gas supply were to deviate from the gas supplies international demand has to increase.
The relative well-being of the overall population benefits locally outweigh scenarios with no-exports. It states that while capital income, wage income, and indirect tax revenues drop, due to the increase in fuel prices as the Sierra Club indicated. Incomes will increase from higher resource value and net wealth transfer from income if the all assumptions included with our policy are met. The overall positive income translates into high GDP and consumption.
In accordance to NERA’s LNG report revenue projections for a high shale case increase GDP by $10-$47 billion. While the lower shale case projections show GDP could increase by $4.4 billion. Again all scenarios benefit with exports present outweighs those where there are no exports. Although the price of an LNG plant could be substantial, the economic benefits would act as an increased investment for liquefaction facilities, both locally and in developing countries.