Exports of liquefied natural gas (LNG) are set to begin in 2015, and the number of United States LNG export stations are expected to triple by 2019. The next phase of U.S. energy is almost here, regardless of dissenting opinions from the chief of the International Energy Agency. According to a recent report by the Energy Information Administration (EIA), the U.S. can expect to reap the benefits of exporting its plentiful natural gas.
A 42-page report published on October 29, 2014 determined the effects of LNG exports from the lower 48 states on U.S. energy markets. A final determination was not made, but the effects of U.S. LNG will undeniably have an impact on the global energy market. The report determined domestic energy prices will actually rise with the introduction of LNG exports due to the demand to keep the product at home. Bills to end use consumers in the U.S. will increase by 1% to 8% by the year 2040. Electricity bills are projected to rise by as much as 3%. The country’s primary energy use will also increase by 0.4% at its midpoint due to the added production.
Additional costs at home, however, do have positive effects in the long run. The report says, “Increased energy production spurs investment, which more than offsets the adverse impact of somewhat higher energy prices when the export scenarios are applied.” The EIA believes gross domestic product would receive an uplift of 0.11% at its midpoint.
The EIA may be the base of all energy information, but it does not hold a crystal ball. The group warns in its report that several factors can occur before 2040 and severely impact its projections. Four different wide-ranging scenarios were used in the report, and some yielded very different results. The scenarios took into account both the high and low range cases in addition to high economic growth rates and accelerated coal and nuclear retirements. These cases could all be deemed irrelevant if supply disruptions, policy changes or technological breakthroughs impact the global energy scene.
Increasing domestic productionto keep up with LNG demand will only further cut into the reliance for imported energy, the EIA says. The U.S. is on track to be a net exporter of natural gas before 2020 and is expected to produce 67.5 Bcf/d in 2015. Its dependence on international sources is already declining and the EIA believes imports from Canada will also slide. U.S. production by 2040 is expected to reach 102.6 Bcf/d, or more than 50% above today’s output. Japan, Korea and India are three major destinations lined up for the next few years. The introduction of U.S. LNG to the market would also cut into Russia’s high gas price stranglehold in Europe and Asia, further constricting a business that has already felt the effects of western sanctions.
Precursor to Oil Exports?
The rising debate of lifting the oil export will expectedly align the spot prices between the two major indices: Brent and West Texas Intermediate. Since the Brent price is historically higher, Brent will slightly decline and WTI will slightly rise, resulting in added benefits to U.S. E&Ps. The extra room for price growth would be a nice sight to companies that have battled through a difficult 2014. The stock price of 86 E&Ps in EnerCom’s Weekly Database has dropped an average of 19% year to date.
Lower energy prices in the United States may hurt the balance sheets of energy companies, but the benefit to consumers is significant. Each cent gasoline drops results in $1.4 billion of stimulus to the American public. If oil were exported, however, a reverse effect would take place with domestic prices rising and the importing regions’ price declining.
The majority of U.S. refineries are opposing the exports considering it will hurt their bottom dollar. In a recent conference call, Tom O’Malley, Chairman of PBF Energy, a refinery company, said refiners would pay $3 to $4 more if the ban is lifted, thus increasing prices at the pump by a midpoint of 10 cents per gallon.
The argument does hold water, considering both ExxonMobil and Chevron reported large earnings in their respective Q3’14 results due to strong refinery returns in spite of the falling oil price market. Valero publicly opposed lifting the ban in January, saying opening the export floodgate would hurt its margins.
A more in-depth perspective regarding infrastructure and takeaway capacity is expected to be released by the EIA in the near future.
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