Five Reasons U.S. Could Be World’s Top LNG Exporter Sooner Rather than Later

Last month, EID highlighted how the U.S. has become a major liquefied natural gas (LNG) exporter virtually overnight. The trend has certainly continued. In the 17 short months since the first shipment of U.S. LNG departed Cheniere Energy’s Sabine Pass liquefaction facility, we have already shipped LNG to 24 of the 35 nations that have the capability to import the fuel. And a new Energy Information Administration (EIA) report released this week projects U.S. LNG exports will quadruple this year from 2016 levels.

Experts widely agree that the U.S. will be one of the world’s top three LNG exporting countries by 2020. But some experts are saying we shouldn’t be surprised if the U.S. has assumed the top spot by that time. For instance, Nick Grealy, Publisher of UK-based natural gas blog No Hot Air, recently said,

“I believe the USA could well be the number one exporter by 2020 given the ever surprising rise in shale production…”

Several other factors beyond the ongoing resurgence of the shale revolution are trending in the U.S.’s favor as well. Here are five reasons Grealy’s outlook may not be so far-fetched.

Reason #1: Export Capacity Will More Than Quadruple Over Next Two Years

In addition to ongoing expansion of Cheniere’s Sabine Pass facility in Louisiana (currently the only LNG export facility in the continental U.S.), four other LNG export facilities are slated to be in operation by the end of 2019.

Cameron LNG has a Louisiana facility under construction that is slated to open in 2018. Freeport LNG’s Texas facility is also slated to open in 2018, while the Cove Point terminal in Maryland is scheduled to open later this year, and Cheniere’s Corpus Christi facility will likely open in 2019.

All told, these new facilities will more than quadruple the U.S. current LNG exporting capacity from 13.5 MTPA (metric tons per annum) to 66 million tons per annum by 2019, only bolstering what has already been an impressive foray into the LNG exporting.

Cheniere shipped 381 billion cubic feet (Bcf) of LNG from February 2016 to April of this year, including 197.6 Bcf in first four months of 2017 and record shipments in May, as the following Bloomberg graphic shows.

U.S. LNG exporters currently have contracts to supply more than 80 million metric tons of LNG a year. So based on the following International Gas Union graphic showing 2016 LNG export data by country, this ideally positions the U.S. to challenge Qatar and Australia in terms of export capacity sooner rather than later.

A planned second wave of four permitted terminals (in Texas and Louisiana) would potentially equal the first wave’s capacity.

Two other waves are currently in the regulatory review process and could yield 12 more facilities. Not surprisingly, a vast majority of the projects are based in the booming Gulf Coast region, as the following EIA graphic illustrates.

Fortunately, the Trump administration has committed to ensuring such projects don’t get bogged down in bureaucratic minutia. And another key step taken by the Trump administration — allowing LNG exports to be shipped to countries that lack free-trade agreements with the U.S. — could play a huge role in financing the third and fourth wave of projects once they’re approved.

Reason #2: Huge Potential Long-Term Customer in the Far East

Our recent LNG trade agreement China — the most notable country lacking a free-trade agreement with the U.S. — may only be setting the stage for much bigger things. The potential for a long-term LNG deal with China could be the “game changer” that makes the third and fourth wave of LNG export facilities a reality, as a recent E&E News piece noted,

“One telling opportunity is on the White House’s doorstep — and China’s, too. That is the possibility, broached by Commerce Secretary Wilbur Ross, that China will sign long-term commitments to buy a game-changing supply of U.S. liquefied natural gas and double down by investing part of the capital needed to start a new round of LNG export terminal expansion in this country.”

Barclays Research also believes this opportunity could help see the second, third and fourth wave of U.S. LNG export terminal projects gain the necessary funding to get to the finish line,

“The ability of Chinese companies not only to sign long-term purchase contracts but also to contribute billions of dollars of investment capital to the huge costs of new LNG facilities, could move some projects from plans to construction.”

According to a Wood MacKenzie analysis, U.S. companies currently provide just seven percent of China’s LNG imports. Considering Chinese LNG demand could triple by 2030, the firm believes the opportunities are enormous.

Reason #3: Other Top Exporting Countries Facing Challenges

Another factor that could come into play sooner rather than later is the real challenges being faced by top LNG exporting countries Qatar and Australia.
Australia recently enacted a regulatory measure capping exports due to domestic shortage concerns. According to a recent Platts analysis, this could cap Australia’s LNG exports at 80 mmt in 2019.

A recent Forbes piece explained why Australia has taken a precautionary approach — it simply doesn’t have the natural gas production might of the U.S., which drives up its domestic prices and has led to concerns of shortages.

“In addition, per EIA 2017 Energy Outlook, U.S. LNG exports (net) are expected (in a base case) to absorb only around 10-12% of the total U.S. natural gas production over the next decade or so. This is far below the 50% of Australia’s natural gas that is exported today or the 2/3 or so forecasted for the 2030s.”

Qatar Petroleum recently said it will raise output by 30 percent to 100 mmt per year within seven years. Nobody questions its ability to reach that figure. But the tiny Arab nation will have to find buyers, which could be more challenging due to strained relations with several neighboring countries.

Reason #4: Eastern Europe’s Opportunity to Get Out of an Abusive Relationship With Russia

Roughly half of Europe’s imported natural gas comes from Russia, which has used its energy status to put political pressure on energy-poor Eastern European countries like Ukraine, Poland and the Baltic states on numerous occasions in recent years.

As foreign policy analyst Ed Turzanski recently said on the Chris Stigall Show,

“Every time the Russians wanted an advantage, if somebody in Europe said something, all Moscow had to do was turn the thermostat down in the middle of winter.”

As S&P Global Platts recently tweeted, this policy has led to huge profits for state-owned Gazprom.

A recent Wall Street Journal editorial also noted:

“As long as pipelines were the only transportation option, outfits like Gazprom were able to force their customers to take gas at inflated prices…”

But Russia now has a bit of competition in the form of the U.S. LNG — and Eastern Europe has an opportunity to get out of its abusive relationship with the Kremlin. As E&E recently reported,

“Liquefied natural gas is already on its way from new U.S. export terminals to foreign markets, challenging Russia’s longtime monopoly on gas shipments to Europe, which had served as a potent political weapon in the past, and pushing LNG prices in Europe and Asia sharply downward.”

The new import facility in Poland — which recently received its first shipment of U.S. LNG — has the potential to replace 80 percent of Russia’s natural gas supply.

Lithuania, Latvia, Estonia and Croatia also have import terminals in the works or already built. Each of those countries is part of the 12-country Three Seas Initiative, which is largely composed former Soviet nations who have the goal of “strengthening trade, infrastructure, energy and political co-operation among countries bordering the Adriatic, the Baltic and the Black Sea.”

This is why some have argued President Trump’s recent appearance at the Three Seas Initiative Summit, where he unabashedly promoted U.S. LNG exports, could prove more important in the long run than the much-hyped G20 summit.

During the less-publicized former summit, Trump said the U.S. “stands ready to help Poland and other European nations diversify their energy supplies so that you can never be held hostage to a single supplier, or as we sometimes we call it, a monopoly,” adding,

“We are sitting on massive reserves of energy and we are now an exporter of energy, so whenever you need energy just give us a call.”

Of course, there is the distinct possibility that Russian natural gas could be cheaper than U.S. LNG, due in large part to current infrastructure and pipeline projects currently in the works. A recently passed Senate bill that would allow sanctions to be levied on investment in Russian pipelines could blunt the effectiveness of Russia’s plans, however.

Ultimately, the choice will be up to Eastern Europe. But at least those countries have an option now, thanks to U.S. LNG.

Reason #5: Global Natural Gas Demand Likely to Rise — and U.S. in Position to Meet Demand

There is no debate that global demand for natural gas is going to rise significantly in the coming years and that the U.S. is the country most ideally positioned to meet that demand.
The International Energy Agency (IEA) projects global demand for natural gas will grow 50 percent by 2040, sparking increased production, two thirds of which will come from the U.S. The EIA projects a 48% increase in world energy consumption by 2040 and says:

“Natural gas, which has a lower carbon intensity than coal and petroleum, is the fastest-growing fossil fuel in the outlook, with global natural gas consumption increasing by 1.9% per year.” Liquefied Natural Gas, or LNG, is growing “seven times faster than pipeline gas trade,” with supplies set to increase “by almost 50 percent between 2015 and 2020.”

A recent Louisiana State University report projects U.S. natural gas production will soon surpass record levels reached in 2015 and continue growing all the way through 2030.

Considering EIA expects global LNG demand to grow 5 percent annually — and that more than half of the 102 million tonnes/year of new global LNG production scheduled to start up between now and 2020 will come from the United States — the magnitude of the opportunity facing the U.S. LNG industry couldn’t be clearer.

Conclusion

Granted, it is likely that all five of the trends EID has highlighted will have to play out exactly as described over the next two-plus years for the U.S. to become the world’s top LNG exporter by 2020. And there is always the potential for an unforeseen development throwing a wrench in this upward trajectory (such as the prospect of China becoming a shale gas power).

But as Merrill Matthews, resident scholar, Institute for Policy Innovation in Dallas, recently said, “It’s hard to overstate the importance of this new global market for LNG.”

Thomas Hudson, president of G2 LNG in Baton Rouge, also summed up the current environment nicely when he recently said, “[W]e have the gas and the world wants the gas. The challenge is how do we get it out of the U.S. and into the global markets. In other words, what form will it take and what delivery systems will be used to deliver this gas to the world? LNG will be the biggest player.”

 

 

 

 

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