RICE (US) — The long-term volume of exports from the United States will not likely be very large, predicts a new report.
The paper from Rice University’s Baker Institute for Public Policy also argues that the impact on US domestic natural gas prices will not be large if exports are allowed by the US government.
Significant changes in the global gas market in the past decade, particularly the emergence of shale in North America, have dramatically altered the global outlook for liquid natural gas (LNG) markets and fueled the commercial aspirations of firms seeking to seize the apparent profit opportunity offered by exports.
The altered outlook has also raised the concern that allowing exports from the US will force prices up and negatively impact industrial activity and household budgets.
“The lens that has been offered policymakers to address the question of US LNG exports is inappropriate because it assumes a level of exports without accounting for the international market reaction,” says study author Kenneth Medlock, a Baker Institute fellow and an adjunct professor and lecturer in economics.
“The question before policymakers is one of licensing a capability, not licensing a fixed volume. Therefore, this issue must be viewed in the context of international trade if informed policy decisions are to be made,” say Medlock.
Previous studies on the impact of US LNG exports on domestic prices have assumed a particular volume of LNG exports from the United States when assessing the domestic price impact, but they did not allow for domestic and international market interactions.
This is a serious flaw, says Medlock, because market interactions will influence price movements and trade volume.
“The bottom line is that certification of LNG exports will not likely produce a large domestic price impact, although the entities involved may be exposed to significant commercial risk,” Medlock adds. “As the story plays out, the international gas market will evolve into something dramatically different from what it is today.”
Source: Rice University