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Global Marketplace Beckons U.S. LNG Exports

Mark Green

Mark Green
Posted March 16, 2017

In a letter this week to Energy Secretary Rick Perry, API President and CEO Jack Gerard makes the strong case for expediting federal approval of liquefied natural gas (LNG) export applications:

There are more than two dozen non-FTA LNG export authorization applications before DOE, with approximately half awaiting consideration since 2014. Expediting the approval of these export authorization applications will help establish regulatory certainty, bolster American job creation and U.S. investment, and allow U.S. companies to compete in the global natural gas marketplace.

Gerard’s letter notes that the U.S. has enough natural gas to both supply affordable energy for consumers here at home while also significantly increasing America’s presence in the global LNG market. Increased LNG exports will help stimulate domestic output, creating jobs and boosting the economy in the process, he writes.

The letter comes as it’s increasingly clear that rising domestic natural gas production has positioned the U.S. to be a larger player in the global LNG market. With increased liquidity in the LNG spot market -- where LNG may be re-sold to other buyers in a global “spot market” like the ones that exist for crude oil and petroleum products – the U.S. could strengthen its position with added LNG export capacity.

The U.S. Energy Information Administration (EIA) projects the U.S. will become a net exporter of natural gas on an average basis by next year. This results from surging domestic production – thanks to hydraulic fracturing and horizontal drilling – declining pipeline imports, growing pipeline exports and rising LNG exports. EIA says that by 2021 five U.S. LNG export facilities, including four under construction and the already operating facility at Sabine Pass in Louisiana, are expected to have an operational export capacity of 9.2 billion cubic feet per day. EIA’s chart shows U.S. natural gas output, home consumption and natural gas trade:

NG_output_consumption_trade

EIA connects LNG exports and domestic production growth:

The growth of natural gas exports, especially from new LNG terminals, sustains continued growth in U.S. natural gas production. In the Reference case, natural gas production is projected to grow through 2020 at about the same rate (3.6% annual average) as it has since 2005, when production of natural gas from shale formations began to grow rapidly.

Here are EIA’s projection scenarios for U.S. LNG exports:

LNG_export_scenarios

As for the global LNG market, Bloomberg has this piece that highlights the impacts of U.S. natural gas production and U.S. efforts to capture more of that market. London-based consultant Energy Aspects Ltd. tells Bloomberg the U.S., will be the third-largest LNG exporter in the world in 2020:

US_LNG_export_projection

The start of shale natural gas exports last year from Sabine Pass is now supporting a trading model in which U.S. exporters seek the best price for their natural gas at any given time – versus long-term contracts with set destinations. This was illustrated in December when an LNG ship from Louisiana, originally bound for Asia, did a U-turn in the Pacific Ocean and headed back to the southeast to unload its cargo at a Mexican terminal. Bloomberg:

As U.S. exports grow, it’s a strategy that could shift the economics of LNG toward an emerging spot market akin to oil. … “The U.S. puts gas into places on short notice at a good price,” said Jason Feer, head of business intelligence at ship broker Poten & Partners Inc., in a telephone interview. “It’s been flexible. The market’s becoming more short term and the U.S. has been very effective at meeting those needs.” … Breanne Dougherty, a natural gas analyst for Societe Generale SA in New York, calls the U.S. push into the global LNG market “an inarguable game changer.”

Back to Gerard’s letter to Perry. The global LNG market is developing, and the spot market’s growing liquidity could favor U.S. exporters, already benefiting from abundant domestic supply and ready access to the Panama Canal. America has the natural gas and access to markets. Artificial restrictions on LNG export project development should be removed. The potential benefits to the United States are significant. Gerard:

The first shipments of U.S. LNG from the lower 48 states began last year and are having a positive effect on global LNG markets by increasing market flexibility and providing a cleaner-burning reliable fuel option for our allies and trading partners. However, the United States has an even greater opportunity to bolster its emerging role as a leader in the world energy marketplace. … Expanding demand for U.S. natural gas in international markets through LNG exports will likewise result in increased investment, enhanced economic activity, rising incomes, and more American jobs – just as the case has been with increasing exports in other U.S. industries, including those that utilize natural gas, such as our nation’s petrochemical manufacturing industry

ABOUT THE AUTHOR

Mark Green joins API after spending 16 years as national editorial writer in the Washington Bureau of The Oklahoman newspaper. In all, he has been a reporter and editor for more than 30 years, including six years as sports editor at The Washington Times. He lives in Occoquan, Virginia, with his wife Pamela. Mark graduated from the University of Oklahoma with a degree in journalism and earned a masters in journalism and public affairs at American University. He's currently working on a masters in history at George Mason University, where he also teaches as an adjunct professor in the Communication Department.