The EIA projects a 48% increase in world energy consumption by 2040 and gas is set to be a big part of that picture. According to the EIA site: "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".
Burgeoning US production is a big reason for the growth of LNG, and there are predictions that the US is set to become a major LNG exporter for the first time in history. Platts Analyst Chris Pedersen had this to say in February of last year: "Eclipse data shows that by 2020 the US will have become home to 15% of global liquefaction capacity and could become the world’s third largest exporter (behind Australia and Qatar)." I spoke with several professionals in the energy sector and asked them how close Chris Pedersen's predictions were to coming true.
Jarl Pedersen, Chief Commercial Officer, Port of Corpus Christi @PoccaPort
The current building boom of LNG plants in the US is impressive on a global scale, with several LNG trains in commercial operating or under construction, including the first two LNG trains at the Corpus Christi Liquefaction project. Global LNG demand is expected to grow by about 5% annually and additional LNG supply will be required to meet global LNG demand after 2020. Current market conditions make it more difficult for traditional LNG sellers to entice new LNG buyers to sign long-term take-or-pay contracts.
LNG buyers are increasingly interested in the flexibility provided by tolling structures that LNG plants in the US are offering. Additionally lower LNG prices attracts new buyers and marketers are successfully adding new countries to the list of LNG importers, while new LNG buyers are looking for lower volume commitments and shorter term contracts.
Gregory Pilkinton, Commercial Director, Magnolia LNG @PMCommercial
According to the most recent BP presentation in January, 2017 Energy Outlook, the US will become the 3rd largest LNG exporter in the world by 2020, behind Qatar and Australia. This is supported by the amount of LNG sold under long-term contract by US liquefaction projects currently operating or under construction. Should the US exports rise by another 10 bcf/d and continue to be successful in selling volumes and taking final investment decisions, the US could become the world’s largest LNG exporter as early as 2025. Geographic location and CAPEX cost give LNG buyers access to reasonable shipping cost, low liquefaction fees, and portfolio diversification through the Henry Hub index. (Disclaimer: this is Mr. Pilkinton's opinion and not that of his company's.)
Max Tingyao Lin, Markets Editor, Lloyd's List @MaxL_Lloydslist
Given the number of its LNG export projects set to come onstream in the next few years, there is certainly a strong possibility that US would become the world’s third largest exporter by 2020.
The bar is actually not that high. Malaysia, the current No 3, is expected to see much smaller expansion in liquefaction capacity. And its gas fields are maturing. But of course, there are also some other variables.
The US is set to have the world’s third-largest LNG export capacity by 2020, according to the Department of Energy. But such projects can often be delayed for technical reasons at initial stages.
And another question is: does the world need that much LNG? Global demand is surely expanding at a healthy pace, but still slower than supply growth. If buyers are taking their time in making long-term commitments, US producers may opt to ramp up output—and exports—only slowly.
As for geopolitics, the biggest risk is probably Russia. If the world’s largest natural gas exporter aggressively raises sales to Europe and China via pipelines, US players may have trouble establishing footholds in this highly competitive market.
Leslie Palti-Guzman, Director of Global Gas, Rapidan Group @lpalti
The Trump administration poses little risk to US LNG exporters/importers near term, but longer term political risks remain.
President Trump’s pro-fossil fuels policies will likely support LNG exports, as abundant gas supplies will meet future US demand without substantial price increases. Despite President Trump’s rejection of TPP and his focus on “better” bilateral trade deals, US LNG players will benefit from strong Energy and State Department support (both Rick Perry and Rex Tillerson have endorsed US LNG exports). I expect DOE will grant export permits for remaining proposed LNG export projects expeditiously.
President Trump’s America First vision, could be interpreted in the future as US gas for America first.
However, Trump’s protectionist views are a non-negligible risk that could restrict LNG exports in the event the manufacturing/petrochemical industry renews its lobbying efforts against exports. President Trump’s America First vision, could be interpreted in the future as US gas for America first. President Trump may choose to prioritize the US domestic market by revoking export permits if domestic natural gas prices rise dramatically during his time in office, as it would hurt the US manufacturing and chemical industry. The President has the power to stop exports without Congress, either by executive action or via DOE (which can rescind LNG export permits). That said, multiple studies, from DOE as well as from bi-partisan initiatives, have demonstrated that LNG exports are unlikely to have a large impact on domestic prices.
I expect the US to export 9.2 bcf/d (69 mt) of LNG by 2021 which would make the US one of the world’s top three LNG exporters. However, in a scenario where oil prices are low, US LNG exports will be lower. In addition, US LNG needs to sell. Permitting, contracting and building US shale-to-LNG facilities was in retrospect the easy part, now the US LNG needs to sell. Flexible purchasing agreements, eroding international prices and weakened demand in top LNG consumer country could make the US shale-to-LNG market less attractive than it was a few years ago. However, the high rate of US LNG exports so far and absence of dominant destination for US LNG exports illustrate flexibility, adaptability and responsiveness at a time of increased demand variability and uncertainty. As a swing supplier with abundant flexible supply readily available, US LNG is uniquely placed to backup these new circumstantial needs.
Mark Renton, Oil/LNG Analyst, Lloyd's List Intelligence @MarkRenton11
As far as LNG exports go there will be no challenge to the “top two” of Qatar, with huge proven reserves and low production costs and Australia, which has had massive investment and has new projects due to come on stream shortly.
The US currently exports shale gas from its facility at Sabine, it has already exported 23 cargoes this year, but is expected to have another 4 facilities on stream by 2020.
A lot depends on how Trump views LNG but the signs are good and my guess is that the US will certainly be in the “top five” by 2020.
The rise in US Gulf LNG exports by 2020 will have a major impact on trade flows across the Atlantic basin and the global market as a whole.
Of the 102 million tonnes/year of new global LNG production scheduled to start up between now and 2020, 52.4m tonnes/year will come from the United States, according to LNG Edge.
Three export trains are already in operation at Cheniere Energy’s Sabine Pass plant with capacity of 13.5m tonnes/year.
All US LNG produced will be sold destination free, meaning that buyers will charter their own vessels and take ownership of the cargo in the US Gulf.
Buyers will then take the LNG to their own terminals or sell to other customers across the global market. Final destination will depend on demand and prices and cargoes have already been delivered to Asia, Europe, the Americas and the Middle East.
US LNG will be sold on a US Henry Hub gas price index, bringing another dimension to global LNG pricing, where most LNG is currently sold using oil as a price reference
Jason Feer, Head of Business Intelligence, Poten & Partners @PotenPartners
Poten & Partners’ most recent forecast in December 2016 puts Australia at 81.4 million tons, Qatar at 77.8 million tons and the US at 64 million tons by 2020. So yes I would agree. Also, LNG plants take 4 plus years to build, so you pretty much already know what’s under construction.
There is a chance – if there’s a competition for European market share. If Russia increases exports to Europe and becomes less concerned with price, there is a potential risk that US suppliers may struggle to compete with cheaper Russian pipeline supplies. However, over time, if there is a global LNG surplus, that will be absorbed by growth.
Sara Vakhshouri, President, SVB Energy International @SVakhshouri
At the current time the global LNG market is overwhelmed with supply and the demand growth was not significant in the past years. Also the price differentials between different markets particularly between US and Asia has been reduced significantly. However because of the US unique position in the market and flexibility of its contracts and destination, US can become the future “swing producer” in the LNG and gas market. This is very crucial for the security of the gas supplies and the LNG market. The Fukushima disaster not only surged Japan’s demand for natural gas but also it increased the price differences between Asia and other regions. One of the causes of this price spike was due to lack of flexibility in re-directing the LNG supplies. Solid long-term contracts with fixed destination created challenges for major suppliers like Qatar to change their trade flow and re-direct their supplies to Japan in the shortest time. Hence having a supplier such as the US with higher flexibility and ability to play the role of the swing producer will increase the security of the global LNG and gas supplies particularly at the time of a sudden supply interruption in the market.
Sheila Slocum Hollis, Partner, Duane Morris LLP @energylawgirl
Given the demand for LNG, the continuing desire to rely upon it in electric generation, the “on demand" availability on the world energy stage, I am optimistic. Ongoing success in extraction, increased sensitivity to environmental concerns in the process, available quantities of excess gas all point in a positive direction. However, there are some potential roadblocks and competing interests, as well as development in other areas of the world that could make the outlook more measured. Environmental opposition to drilling, infrastructure, and delivery will plague the oil and gas industry in the US, and potential demand domestically may impact growth if nuclear and coal fired generation in the US declines rapidly. Additionally, there is increasing competition on the immediate horizon from Iran and Russia. However, the politics of Washington have changed and a more encouraging mindset for energy development and deployment may provide a window of opportunity in the 2020 timeframe. However, the worldwide political fluidity may sweep away many assumptions about energy demand and development.
Nick Grealy, Publisher, No Hot Air @ReImagineGas
I believe the USA could well be the number one exporter by 2020 given the ever surprising rise in shale production. The US also benefits from a very short cycle in building new LNG projects, and some agile new entrants such as Tellurian and Texas LNG. Cameron LNG in Oregon is also coming back from the dead under the new Administration. But the North American surprise in the early 2020’s will be Canada LNG, from both coasts, finally reaching the market. Put the US and Canada together and the battle for third could well be between Qatar and Australia.
We very much look forward to Jarl Pedersen, Gregory Pilkinton, Leslie-Palti-Guzman and Jason Feer's discussions on the future of US LNG Exports at our LNGgc Americas event this May 31 through June 2 in Houston.