[NGW Magazine] US Becomes Exporter

As the US moves into net gas exports, the importing world has to adjust to this disruptive element of destination-free cargoes, transparently priced.

In a disclosure that likely caught few by surprise, the US Energy Information Administration (EIA) said in early January that the US became a natural gas exporter last year for the first time since 1957.

Net exports averaged about 400mn ft³/day in 2017, a reversal from 2016, when net imports averaged 1.8bn ft³/day, the agency said.

The change comes as the US increased global LNG exports and pipeline gas exports to neighbouring Mexico. The US also increased natural gas production.

Dry natural gas production averaged 73.6bn ft³/d in 2017, up 1.0% from the 2016 level and reversing the 2016 production decline, the EIA said in its January 9 Short-Term Energy Outlook. The strongest production growth occurred late in the year, thanks to improved economics related to expanded pipeline capacity, which contributed to a 3.8% increase in production between the third and fourth quarters of 2017.

However, the real story from the EIA’s disclosure is the projected increase in LNG exports. In 2018, three additional US-based LNG export projects will become operational: the $4bn Cove Point LNG export terminal in Maryland will reach full capacity of 5.25 mn mt/y this year, while six of the ten small modular trains (each with a capacity of 35mn ft³/d) at the Elba Island facility on the Georgia coast will also enter active service this year. The first liquefaction train (700mn ft³/d capacity) at the Freeport LNG export terminal in Texas is also expected to come online by the end of 2018.

This extra liquefaction capacity joins four trains already operational at Cheniere Energy’s Sabine terminal on the US Gulf Coast.

In a July report, the International Energy Agency (IEA) projected that the US would generate almost 40% of the rise in global gas output between 2016 and 2022 – a dynamic that is already revolutionizing global gas markets with both geopolitical and economic ramifications.

Moreover, by the start of the next decade, the US will have as many as five major LNG export projects operational, with a liquefaction capacity over 60 mn mt/yr, becoming the world’s largest LNG exporter after Australia and Qatar. Additional projects are in various stages of the federal review process as well. 

China’s gas thirst

This extra supply will hit an already saturated global LNG market that has been forecast to remain over supplied until 2020 or 2021. 

However, given China’s exponential gas demand as the country ramps up its replacement of coal used for thermal power generation with cleaner burning gas, that demand has the potential to offset the historic LNG supply overhang, possibly restoring market equilibrium earlier than expected.

As China, which only procures US-sourced LNG on a spot basis, begins to reach long term off take agreements for American LNG, the trade and geopolitical implications are enormous. 

In short, Beijing (though it will still have a number of producers to buy gas from, namely Australia, Malaysia and Qatar) will find itself in an uncomfortable dilemma where it will rely more on both American gas and crude oil shipments. 

Chinese demand also drove Asian LNG spot prices up in 2017 to their highest level in three years, finishing the year over $10 mm Btu. On January 3, Standard & Poors’ month-ahead spot assessment for northeast Asia, the Japan Korea Marker (JKM), reached $11.20/mn Btu – more than double the low point of $5.40/mn Btu last year.

Russian gas equation

Much has also been made about how increased US-sourced LNG will help Europe offset years of over reliance on Russian pipeline gas and the ever present threat that Moscow could cut off gas supplies again during the winter as a geopolitical weapon. However, it’s increasingly evident for a number of reasons that arguments claiming American LNG will replace Russian gas on the continent are overblown. First, the sheer volume of gas from Russia already being exported to EU members is vast. In 2016, almost 90% of Russia’s 7.5tn ft³ of natural gas exports were delivered to customers in Europe via pipeline, with Germany, Turkey, Italy, Belarus, and the UK receiving the bulk of these volumes.

Much of the remainder was delivered to Asia as LNG. Moreover, the EU still receives more than 30% of its natural gas imports from Russia. This trend continued last year as well. Russian gas giant Gazprom said it completed record deliveries to Europe and Turkey in 2017 for a total of 193.9bn m³ – 8% higher than its previous record, set in 2016. However, Russia will still have to contend with other producers eager to snap up European market share, namely Qatar – which has pledged to ramp up LNG production from 77 mn mt/yr to 100 mn mt/yr within the next five to seven years – and, in time from Africa and Iran. 

Tim Daiss