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Baker Institute - Natural Gas Price in Asia: What to Expect and What It Means

22-Oct-2014

Authors:  Kenneth B. Medlock III, Ph.D., James A. Baker III, and Susan G. Baker, Fellow in Energy and Resource Economics, and Senior Director, Center for Energy Studies, James A. Baker III Institute for Public Policy, Rice University

Total Pages:  25

Date:  February 18, 2014

From the Document:

Extended Abstract: A decade ago, the natural gas industry was preparing for a structurally transformative shift in the global market. Substantial capital investments were being made to facilitate the import of liquefied natural gas (LNG) to the United States from the Middle East, Africa, Russia, and other distant locations. The consensus market view at the time was that US domestic supply was in terminal decline. However, innovations involving hydraulic fracturing and horizontal drilling have led to dramatic domestic production growth from shale, which now has the US considered a possible exporter of LNG, which was virtually unthinkable just a decade ago. Development of LNG export capability from the US is only one margin of response that is being fueled by the recent price differentials between the US and Asia that are in excess of $14/mcf.  Other margins of response include: (i) the potential development of shale gas resources in China; (ii) investment in pipeline infrastructure to move supplies from Russia, Central Asia, and South Asia to Northeast Asia; and (iii) expansion of LNG supplies sourced from locations such as East Africa, the Middle East, and Australia. Asian and European consumers generally view adding US exports to their supply portfolios as desirable, particularly because they are tied to a liquid gas market and there is low risk of disruption. Meanwhile, incumbent producers in these regions view the prospect of US exports as a competitive threat that could transform the Pacific Basin market.