Vision of Liquefied Natural Gas Hub: Mirage on the Ocean?

Wed Nov 09 14:37:01 EST 2016
By Dr. Laura T. W. Olive

In an article in the November issue of Public Utilities Fortnightly, NERA Senior Consultant Dr. Laura Olive discusses the role that US liquefied natural gas (LNG) exports will play in the global market. The entry of the US as a major exporter in the market will undoubtedly affect LNG world trade. However, the hope for US LNG exports to spark a true commodity market, like oil, does not take into account the unique features in regulatory and cost structures that fog that vision. For the LNG trade, liquefaction in particular requires large upfront capital investments. Long-term contracts are typically the vehicle through which investors plan to recoup those investments.

While the US is poised to become a serious player in LNG exports, there are certain barriers to accessing European Union consumers. The uncertainty and evolving nature of regulation in the EU means that US LNG exporters will have difficulty reaching inland gas consumers. Moreover, the costs of LNG are ill-suited to spot market transactions. These challenges mean that LNG will likely remain dominated by long-term contracts for the foreseeable future.

This article is provided with the permission of the publisher.