Ban on US LNG exports would be "highly destabilising": IHS
Disrupting US LNG supply would "have a highly destabilising effect both politically and commercially," IHS Markit has warned in a commentary published on December 14.
US gas prices have more than doubled this year, although this increase pales in comparison to the sharp growth in prices in Asia and Europe. Nevertheless, the US government has faced calls from some domestic gas consumers, including the Industry Energy Consumers of America (IECA), to cut LNG exports, to ensure there is enough supply for the domestic market.
IHS warned that such a move would risk higher prices for US consumers while undermining US interests and emissions reduction goals abroad. LNG supply has helped some countries particularly in Asia reduce the use of coal in power generation and heating, reducing emissions.
“When markets are tight, what is required is an assurance of steady, secure, reliable supply, and reliability for the agreements and relationships with other countries underwriting this supply,” IHS' vice chairman Daniel Yergin commented. “Proposals to limit or redirect supply only exacerbate tensions, add to uncertainty and market volatility, and undermine both investor and consumer confidence, as well as relationships with US allies and partner countries.”
While North American gas prices have risen significantly in recent months, they are now trending downwards and are much lower than prices elsewhere, IHS said. Disrupting US LNG exports would cause a dislocation between supply and demand in the US, it said, stifling investment in supply and likely resulting in increased volatility and higher prices.
“We have already learned from the COVID-19 crisis the harmful impacts of suppressed upstream investment,” explained IHS' senior director for global gas, Matthew Palmer. “Demand has emerged sprinting while supply is limping to catch up. Increasing supply, not muffling demand, is the right response to meet the needs of consumers in a recovering economy and to support economic growth. Otherwise, the cycle repeats itself.”
The move would also exacerbate energy crises unfolding in Asia and Europe.
“The US is the third largest exporter of LNG in the world, delivering supply to more than 35 countries in recent years,”IHS' chief strategist for global gas, Michael Stoppard, said. “You cannot engineer a stoppage—even a partial one—without dealing a major blow to investor confidence and undermining relations with key partners who would see such a move as an arbitrary and damaging change to the rules of the game, as well as a negative shock to their economies."