America’s Unstoppable LNG Boom

Since Cheniere sent America’s first LNG cargo abroad in early 2016, U.S. gas exports have reached buyers in Latin America, Europe, Asia, and even the Middle East. The shale gas boom allowed the U.S. to send cargoes overseas, easing some of the domestic glut, with exports hitting a new monthly record in May.

Last month, 18 cargoes departed from Sabine Pass—so far the only LNG export facility in the U.S.—totaling approximately 61 Bcf, a new monthly record, the EIA said in its Natural Gas Weekly Update for the week ending May 31.

America’s LNG has reached the world fastest-growing LNG import market, Asia, and markets in the Middle East. In a few days, cargoes from Sabine Pass will call at Rotterdam for a first Northwest Europe destination, and to Poland—a first delivery to a country in Central and Eastern Europe, where Russia’s Gazprom reigns supreme.

Since February 2016, U.S. LNG cargoes were delivered to 20 countries, including to China, Japan, South Korea, and India. Middle Eastern buyers were Egypt, Jordan, Kuwait, and the UAE—not a negligible development given the fact that neighboring Qatar is the world’s largest LNG exporter. The ongoing diplomatic crisis between several Arab states—led by Saudi Arabia—and Qatar is currently not expected to directly impact Qatar’s LNG trade, although the UAE may have to buy LNG from suppliers other than Qatar, analysts reckon.

U.S. LNG supplies are broadening their global reach, with an LNG tanker out of Sabine Pass scheduled to call at Rotterdam on June 7. Also this month, Polish Oil & Gas Company (PGNiG) will welcome in the first half of June the first delivery of LNG from a U.S. supplier—Cheniere Energy—to Poland.

In the medium to longer term, U.S. LNG is expected to reach more markets and send more gas overseas, as four LNG export facilities currently under construction are expected to be completed by 2021. The United States is expected to become a net exporter of natural gas on an average annual basis by 2018, driven by declining pipeline imports, growing pipeline exports, and increasing LNG exports, the EIA said earlier this year. Combined, the four facilities under construction plus Sabine Pass are expected to have an operational export capacity of 9.2 billion cubic feet per day.

Sabine Pass also continues to expand, with trains 4 and 5 currently under construction.

As of May 1, 2017, the Federal Energy Regulatory Commission (FERC) has approved 7 export U.S. terminals that are currently under construction, plus another 4 approved not under construction yet.

Just last week, the U.S. Department of Energy approved a long-term application to export LNG from the first offshore project, Delfin LNG, LLC. Exports in the amount of 1.8 billion cubic feet per day (Bcf/d) of natural gas are approved from Delfin’s proposed offshore Louisiana floating LNG terminal in the Gulf of Mexico.

“The Delfin project would further position the United States to become the predominant LNG supplier to the rest of the world,” the Department of Energy said.

In terms of export destinations, the U.S. and China agreed last month that “Companies from China may proceed at any time to negotiate all types of contractual arrangement with U.S. LNG exporters, including long-term contracts, subject to the commercial considerations of the parties,” the U.S. Department of Commerce said.

Commenting on the deal, Massimo Di-Odoardo, Head of Global Gas and LNG research at Wood Mackenzie, said:

“The agreement connects the US, the fastest growing LNG supplier, with China, the largest LNG growth market.”

U.S. LNG sales in China accounted for 7 percent of China’s total LNG imports in March 2017, Di-Odoardo noted.

“In the longer term, the deal paves the way for a second wave of investment in US LNG. Developers will now be able to target Chinese buyers directly, potentially supporting project financing. It could also support direct Chinese investment into liquefaction and upstream developments on US soil,” he said.

The agreement piles pressure on competing suppliers, including new LNG projects in Australia, East Africa, and Canada, as well as new pipe and LNG projects from Russia, WoodMac noted. In addition, the U.S.-China direct negotiation deal undermines the niche that Shell, BP, and Total have found in acting as the brokers between U.S. LNG exports and China’s imports, according to the energy consultancy.

With the upcoming additional capacity, U.S. LNG has the potential to upend global LNG trade flows.

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