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How Louisiana Satisfies Growing Southern Gas Market Demand: Implications for Portfolio and Investment Strategies in the Delta State

By Greg W. Hopper, Vice President and Kevin Greene, Research Assistant, ICF International

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February 17, 2014 ( newswire) For more than half a century the state of Louisiana has been one of North America’s largest natural gas producers and home to a pipeline grid that is the crossroads of the industry. Through that grid Louisiana has been a primary gas supplier to markets across North America, as traders tapped countless gas production fields and pipeline interconnections, and managed their business with a vast complex of natural gas storage facilities that dot the state. Like much of the natural gas industry, however, Louisiana is undergoing material changes that may now turn it into one of North America’s fastest growing demand centers.

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This reversal of fortune, from big supplier to big consumer, coupled with other trends taking shape across the natural gas landscape, could significantly impact the supply-demand balance in the state. Always a source of supply abundance, a tighter market looms as Louisiana gas demand accelerates in the face of declining access to the state’s conventional supply sources and uncertainties about the access to new supplies that will need to come from outside of the state.

In this white paper we will review the expectations for demand growth, the gas supply sources that will likely be needed, and some of the challenges the industry will need to address to maintain market equilibrium. We close with observations that Louisiana gas traders will need to tap new gas sources from outside the state, and that new portfolio and infrastructure strategies may be needed to deliver those supplies to market.

Surging Louisiana Gas Demand

Gas demand growth in Louisiana is expected to come from a diverse collection of end users, geographic markets and load profiles. The principal drivers of growth will likely be LNG exports, Southeast U.S. gas-fired power generation, and in-state petrochemical and industrial demand. The common thread is that overall consumption will increase substantially over the coming years.

LNG exports are likely to be the largest growth source, as North American Shale resources are attracting buyers from across the globe. Although project sponsors are backing LNG proposals on the East, West and Gulf coasts of the U.S. and Canada, Louisiana projects appear to have captured early market share. There are several reasons for this, including the presence of good brownfield sites, pipeline capacity, and shipping considerations. But one of the biggest factors is the expectation of plentiful gas supplies in Louisiana. As much as 4 to 6 Bcf/day of LNG export capacity may be built along the Louisiana coast line in the next five years, with potential for an additional 3 to 4 Bcf/day by early in the next decade. Given this demand, international buyers are already developing supply procurement and investment strategies.

An interesting development is the mixed industry view on whether LNG exports will uniformly operate as baseload markets, or how gas-fired generation will consistently dispatch. With the rapid ramp of new production capacity in the U.S. and Australia, global LNG markets may have surplus supplies during the non-winter months. Given U.S. storage capacity and flexible markets, the U.S. may for a time assume the role of global market swing supplier.

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