US petchem to keep cost advantage with high LNG exports − study

06 March 2014 20:49  [Source: ICIS news]

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HOUSTON (ICIS)--The US petrochemical industry will remain one of the world's lowest cost producers even if the country exports large amounts of liquefied natural gas (LNG), according to the findings of a study released on Thursday.

NERA Economic Consulting updated a study that was issued in December 2012 by the US Department of Energy (DOE), the regulator charged with approving licences required to export LNG to countries with and without free-trade agreements (FTAs) with the US.

This update was sponsored by Cheniere Energy, which is building an LNG export terminal at Sabine Pass in Louisiana, with the first shipments expected by late 2015.

Cheniere is also developing an LNG terminal near Corpus Christi, Texas.

The new study updates the 63 LNG export scenarios that were in the DOE study, NERA said. It also adds several new scenarios.

Moreover, NERA based these scenarios on the more recent 2013 Annual Energy Outlook and the International Energy Outlook issued by the Energy Information Administration (EIA). The older study used the 2011 versions of these reports.

NERA said that the updated analysis confirms and extends the findings of the earlier study.

“LNG exports provide net economic benefits in all the scenarios investigated, and the greater the level of exports, the greater the benefits,” according to a statement by David Montgomery, NERA senior vice president.

In all, prices would prevent the US from shipping too much LNG out of the country, NERA said.

If prices rise much above current expectations, then little if any LNG would be exported, NERA said. Likewise, if supplies are large, then there would be enough gas for both domestic and overseas markets, and prices would correspondingly be low.

The update attempts to respond to several issues raised since the DOE issued NERA's earlier report, the consultancy said.

The updated study uses more recent data; considers the cumulative effects of additional LNG licences; reviews the effect that LNG exports would have on the nation's chemical industry; and measures how LNG exports would affect employment.

The US has so far issued six LNG export licences, with the most recent one going to Sempra Energy's Cameron project in Louisiana.

Some in the chemical industry have been wary about the US issuing what they consider too many export licences. Chemical producers such as Dow Chemical, Huntsman and Eastman Chemical fear this could limit available supplies of natural gas, causing prices to rise.

Several chemical companies have joined the group America's Energy Advantage (AEA), which advocates against unhindered LNG exports.

Trent Duffy, a spokesperson for AEA, said that he had not had a chance to look in depth at the study as of late Thursday but cast doubt on its analysis.

"It was paid for by a major gas exporter, so we won't be surprised if it has a pro-export tilt," he said.

A copy of the updated NERA study can be downloaded on this website.

Here are some of the key findings in the updated study and the differences between the earlier one:

NERA analysed scenarios in which no limits were placed on LNG exports. The previous study specified a limit of 12 billion cubic feet/day (bcf/day).

US natural gas prices do not become linked to world oil prices.

In five of the study's nine unconstrained export scenarios, US LNG exports would exceed 12 bcf/day.

Unlimited exports always created more benefits than limited ones. Even when US consumer costs rose, these were more than offset by increases in export revenues as well as wealth transfers from overseas. These transfers came in the form of payments for liquefaction services.

The NERA study found no support that unlimited LNG exports would disrupt the petrochemical and manufacturing renaissance taking place in the US. In fact, companies that rely on natural gas liquids (NGLs), particularly ethane, would grow more rapidly.

By: Al Greenwood
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