According to a new Deloitte report, the U.S. is on the verge of “becoming a shale globalizer” while other nations struggle to enter the unconventional revolution.
In the “Oil & Gas Reality Check 2013” report, released May 21, the authors noted that the shale gas revolution underway in the U.S. was “three decades in the making” and that the U.S. industry has significant advantages over its counterparts in Poland, China and Argentina. As a result, the study indicated, those nations and others face an uphill climb.
“These countries still have a long road ahead before they can begin to see the gas volumes and supporting infrastructure needed to dramatically lower natural gas prices and create export opportunities,” the Deloitte authors said.
U.S. companies, on the other hand, are operating in a relatively established regulatory environment with much of the needed infrastructure already in place. Those advantages, Deloitte said, have the U.S. on the verge of altering the global marketplace with unconventional supplies.
“The U.S. is now on the cusp of becoming a shale globalizer,” the authors of the report said. “With low prices and surging production, U.S. gas producers want to tap global markets to increase their price realizations for natural gas. The U.S. is not constrained from an export decision by its reserve per capita or domestic demand as it moves towards globalization of its shale gas.”
If American LNG exports become a reality, Deloitte said, they could alter the way LNG prices are indexed. But instead of eliminating oil indexing, the authors of the study suggested, U.S. LNG could help create a free-for-all on the open market.
“Rather than signaling a complete switch from oil to gas hub indexation for long-term LNG contracts in Asia Pacific, these recent developments [of contracts based on Henry Hub prices] reflect a transition towards a pricing spectrum where oil indexation is one of several pricing mechanisms used,” Deloitte said. “The increased supply from diverse basins and producers will be complemented by growing demand with buyers of different needs.”
For LNG from the U.S. produced by companies without a market share to protect, the authors of the study suggested, indexation to Henry Hub with a price escalator is the most likely outcome. That pricing structure could be one that other, smaller LNG exporters seek to follow as they make their way onto the global stage.
“Even limited U.S. LNG export volumes indexed to Henry Hub will be sufficient to spark competitive pricing among existing and up-and-coming LNG suppliers,” Deloitte said