Competing to Win in Global LNG Export Market

Mark Green
Posted August 2, 2016

Gaining strength is the argument that the United States should move as expeditiously as possible on liquefied natural gas (LNG) export infrastructure that would help secure America’s place in the emerging global LNG market.

The added heft is seen in two ways. First, the initial U.S. shipment of LNG passed through the newly expanded Panama Canal last week, underscoring a point made in this post that the widened canal will shorten voyage times from LNG export facilities on the Gulf Coast to Asia and the western coast of South America, boosting the competitiveness of U.S. suppliers. The U.S. Energy Information Administration (EIA):

A transit from the U.S. Gulf Coast through the Panama Canal to Japan will reduce voyage time to 20 days, compared to 34 days for voyages around the southern tip of Africa or 31 days if transiting through the Suez Canal. Voyage time to South Korea, China, and Taiwan will also be reduced by transiting through the Panama Canal. The wider Panama Canal will also considerably reduce travel time from the U.S. Gulf Coast to South America, declining from 20 days to 8-9 days to Chilean regasification terminals, and from 25 days to 5 days to prospective terminals in Colombia and Ecuador.

Shorter voyages mean faster turnaround times, better service and a boost to U.S. competitiveness.

Secondly, an International Energy Agency (IEA) report projects the U.S. will become the world’s third-largest LNG supplier in five years, behind Qatar and Australia. According to Bloomberg, Energy Aspects Ltd. says global LNG export capacity will grow 45 percent by 2020, and the U.S. share will surge to 14 percent – from basically nothing. Bloomberg reports:   

Gas will challenge coal at European power plants and become affordable in emerging markets, where prices have been high and supplies limited, according to the IEA and Goldman Sachs Group Inc. LNG became the world’s second most traded commodity after oil last year and demand will keep growing, Goldman said. U.S. gas is adding to the global glut triggered by new Australian supply and weakening Asian consumption. Shale is having an outsized impact on how LNG is sold, prompting spot trading in lieu of long-term contracts.

Costanza Jacazio, IEA senior analyst, tells Bloomberg:

 “The U.S. clearly changed the picture. It’s going basically from zero to the third-largest LNG capacity holder in the space of five years and it brings a new flexible dimension to the LNG market.”

Bloomberg’s chart:

All of the preceding demonstrates the game-changing nature of the U.S. shale energy renaissance – one made possible by safe hydraulic fracturing and horizontal drilling. The modern marriage of the two technologies allowed the U.S. to harness the natural gas and oil found in vast deposits of shale and other tight-rock formations. Because of fracking, the United States leads the world in oil and gas production. The shale energy revolution has helped America’s economy, strengthened our security, helped lower consumer costs and advanced climate goals.

It also has created opportunity for the U.S. to both meet domestic needs and supply friends and allies overseas – bolstering our bottom line on trade. Thus the need for policymakers and regulators to set a policy and regulatory environment that fosters the construction of privately financed infrastructure to export U.S. LNG.

A number of projects have gained approval from the Energy Department over the past several months, and that’s good. But more than two dozen others await government approvals. These should be granted in an expeditious manner. The global market is competitive. The U.S. should position itself to earn the largest possible share of that market. This the U.S. can do by being a stable, reliable LNG trading partner – which in many ways hinges on export infrastructure.