US Govt Predicts LNG Import Market Will Diminish To Almost Zero Over Next 2 Decades

By HANS LAETZ California LNG News Service

Imports of LNG into the United States are expect to diminish from a current modest amount to an almost negligible amount by the year 2030, the federal government predicted today.

The government report said current U.S. imports of natural gas, most of which comes from Canadian fields via pipeline, will plummet from 16 percent of supply in 2007 to 3 percent in 2030. The U.S. Energy Information Agency's Annual Energy Outlook 2009 predicted that increased demand for natural gas for vehicles and electric generation will be more than offset by increased domestic production -- and that's even if a natural gas pipeline from Alaska to the lower 48 is not built.

The report says any possible failure to build the Alaska pipe south through Canada would merely result temporarily in slightly-higher higher 48 nat gas prices, causing more exploration and production of nat gas in the lower 48 states. That would still leave North America awash in nat gas that is cheaper than LNG imports, the report concludes.

And although some LNG would make up the difference, that amount would be quite small, the federal energy study states. The report comes from an independent arm of the federal government, outside the Energy Department.

"LNG imports are only slightly higher in the no pipeline case, as a result of increased competition in world markets and the availability of domestic natural supplies at competitive prices," the report concludes. "Higher natural gas prices and reduced supply in the no pipeline case lead to more unconventional production and LNG imports in the lower 48 States."

The report also predicts that LNG imports will peak at 1.5 trillion cubic feet in 2018 before declining to just 0.8 trillion cubic feet in 2030, despite projected U.S. regasification capacity of 5.2 trillion cubic feet. The report says the short-term imports will be the result of an emerging glut of LNG capacity on the world market, "making LNG available to the U.S. market- particularly in the summer to fill storage facilities."

But the report concludes that in the longer term, LNG prices will go up because they are tied to world oil prices. "Ample domestic natural gas supplies reduce U.S. demand for LNG imports," it says.

Here is the LNG section of the report, pages 77-78, from the report, which can be viewed online at http://www.eia.doe.gov/oiaf/aeo/pdf/trend_4.pdf :

"From 2007 to 2030, total natural gas production per year in the reference case increases by more than 4 trillion cubic feet, even as onshore lower 48 conventional production (from smaller and deeper deposits) continues to taper off. Unconventional natural gas is the largest contributor to the growth in U.S. natural  gas production, as rising prices and improvements in drilling technology provide the economic incentives necessary for exploitation of more costly resources.

"Unconventional natural gas production increases from 47 percent of the U.S. total in 2007 to 56 percent in 2030. Natural gas in tight sand formations is the largest source of unconventional production, accounting for  30 percent of total U.S. production in 2030, but production from shale formations is the fastest growing source. With an assumed 267 trillion cubic feet of undiscovered technically recoverable resources, production of natural gas from shale formations increases from 1.2 trillion cubic feet in 2007 to 4.2 trillion cubic feet, or 18 percent of total U.S. production, in 2030. The expected growth in natural gas production from shale formations is far from certain, however, and continued exploration is needed to provide additional information on the resource potential.

"Offshore production also makes up a significant portion of domestic natural gas supply, accounting for 15 percent of total domestic production in 2007 and 21 percent in 2030. The increase in offshore production is largely from deepwater formations and OCS areas recently released from Congressional moratoria. Improvements in natural gas exploration and development technologies reduce drilling costs, increase  production capacity, and ultimately lower wellhead prices, increasing both production levels and end-use  consumption. More rapid technology improvement raises the potential level of natural gas production and offsets the effects of depletion of the resource base, particularly for onshore conventional resources.

"In the rapid technology case, natural gas production in 2030 is 1.4 trillion cubic feet higher than in the reference case; in the slow technology case, it is 1.5 trillion cubic feet lower than in the reference case.  The impact of world oil prices on domestic natural gas production is indirect, affecting natural gas consumption and, to a lesser degree, LNG imports. In the high oil price case, natural gas production in 2030 is 1.7 trillion cubic feet higher than in the reference case, with most of the additional supply, 1.2 trillion cubic feet, being used for GTL production. In addition, higher oil prices reduce liquids consumption, leading to a decline in crude oil processing at refineries, so that more natural gas is consumed at refineries to replace still gas that otherwise would be available for refinery use. Higher levels of natural gas consumption for CTL production and refinery use in the high price case are offset to some extent by a decline in natural gas use for electricity generation.

"In the low oil price case, refineries use less natural gas. Also, with less expensive crude oil taking a larger  share in world energy markets, more natural gas is available for export to the United States as LNG. Domestic natural gas production is therefore lower, and LNG imports are higher, than in the reference case.

"U.S. net imports of natural gas decline in from 16 percent of supply in 2007 to 3 percent in 2030. The reduction is a result primarily of lower imports from Canada and higher exports  to Mexico because of growing demand for natural gas in each of those countries. In addition, with relatively high prices and advances in technology, the potential for U.S. domestic natural gas production (particularly from unconventional sources) increases, providing a competitive alternative to imports of LNG.

"Conventional natural gas production from Canada's Western Sedimentary Basin has been declining in recent years. In the reference case, Canada's unconventional production does not increase rapidly enough to keep up with domestic demand growth while maintaining current export levels. For Mexico, U.S. pipeline exports are needed to meet the country's growth  in demand for natural gas, which is not matched by increases in domestic production and LNG imports.

"In the United States, LNG imports peak at 1.5 trillion cubic feet in 2018 before declining to 0.8 trillion cubic feet in 2030 (Figure 68), despite projected U.S. regasification capacity of 5.2 trillion cubic feet. The near-term increase is the result of growth in world liquefaction capacity, which temporarily exceeds world demand, making LNG available to the U.S. market- particularly in the summer to fill storage facilities. In the longer term, high LNG prices (which are tied to oil prices in many markets) and ample domestic natural gas supplies reduce U.S. demand for LNG imports; however, the amount of LNG available to U.S. markets could change if world natural gas consumption differs from the levels projected in the reference case.

"The AEO2009 reference case assumes that a proposed pipeline to transport natural gas from Alaska's North Slope to Alberta, Canada, and ultimately to the lower 48 States will be built in 2020, and that Alaska's natural gas production will increase by 1.6 trillion cubic feet as a result. The no Alaska pipeline case assumes that the pipeline will not be built, leading to higher prices in lower 48 natural gas markets, more lower 48 production and imports of natural gas, and lower consumption.

"The largest impact on natural gas prices in the no Alaska pipeline case occurs when the pipeline reaches full capacity in 2022, two years after the pipeline begins operating in the reference case. In 2022, Henry Hub spot market prices for natural gas (in 2007 dollars) are higher by $0.63 per thousand cubic feet in the no Alaska pipeline case than in the reference case.

"After 2022 the price impact lessens gradually, to $0.13 per thousand cubic feet in 2030 (Figure 69). In 2026, total natural gas consumption is 0.8 trillion cubic feet lower in the no pipeline case than in the reference case, and consumption for electricity generation is 0.3 trillion cubic feet lower.

"Higher natural gas prices and reduced supply in the no pipeline case lead to more unconventional production and LNG imports in the lower 48 States. Pipeline imports from Canada, which in the no pipeline case do not compete with Alaska natural gas in lower 48 markets, are 0.5 trillion cubic feet above the reference  case level in 2028. LNG imports are only slightly higher in the no pipeline case, as a result of increased competition in world markets and the availability of domestic natural supplies at competitive prices.