The North American natural gas market is characterized by net north-to-south flows: Net Canadian exports supply about 16 percent of U.S. natural gas consumption and U.S. exports to Mexico meet about 18 percent of Mexican natural gas requirements. The first decade of natural gas futures trading on the New York Mercantile Exchange (1990–2000) was characterized by ample supply, as reflected in futures prices that more often closed below $2.00/MMBtu than above $3.00/MMBtu. This relative calm was shattered in the winter of 2000–2001, when natural gas futures prices spiked to $10.00/MMBtu, though they returned to historical levels as abruptly than they'd skyrocketed. However, historically high prices since the second price run-up (peaking in March 2003) have left many wondering if North American natural gas markets have undergone a paradigm shift, with the twelve-month futures strip now averaging $5.50-$6.50/MMBtu.
With landed LNG costs in North America estimated at $2.50-$3.50/MMBtu, many see LNG as the cure-all for the North American natural gas market. LNG imports, which currently comprise under 2 percent of North American natural gas consumption, could make up for increasing decline rates, higher drilling costs, and increasingly remote production areas. About three dozen new LNG import terminals have been proposed in North America, though estimates of how many will actually get built range from 5 to 12. A dozen new terminals could increase North American LNG imports to as much as 15 percent of total consumption, resulting in significant competition for global LNG supplies. The potential impacts of such aggressive growth in LNG imports into North America (if such growth is even feasible) on both global LNG markets and the North American natural gas market will be presented in the context of existing market, regulatory, and geopolitical constraints.
The purpose of this paper is twofold. First, it will assess the potential for aggressive growth in LNG imports into the North America natural gas market, as currently forecast by many parties. Second, it will also assess the impacts of such growth both on global LNG markets and on the North American natural gas market within the context of existing market, regulatory, and geopolitical constraints.
The North American natural gas market is characterized by net north-to-south flows, as shown in Graph 1 (below): Net Canadian imports supply about 15 percent of total U.S. natural gas consumption and the U.S. exports about 2 percent of its total natural gas production to Mexico, meeting about 18 percent of total Mexican natural gas requirements in 2004.
(Figure in full paper)
LNG imports into the U.S. through the four terminals existing in 2004 supplied almost 3 percent of total U.S. natural gas consumption. LNG imports into the U.S. began through those same four terminals in the 1970s during regulatory-induced natural gas "shortages.
