Abundant shale gas supply is driving the growth in US LNG exports, with the start-up of new terminals expected to lead to a boom in demand, writes Sam Wright.
What: US LNG exports are booming after starting up last year.
Why: The country’s exporters are tapping its abundant shale gas supplies for feedstock gas.
What next: More LNG export terminals are starting up in the coming years.
US exports of LNG are soaring thanks to a readily available supply of feedstock shale gas. For shale producers battling low natural gas prices, the coming months and years could see some considerable opportunities as more export terminals come online.
A rapid start
The Sabine Pass LNG terminal began exports in early 2016, marking the first delivery of LNG from the Lower 48 US states. The facility, supplied by shale plays such as the Barnett, Haynesville, Woodford and Eagle Ford, has processed roughly 255 bcf (7.2 bcm) of gas in 2017 so far.
Overall, Sabine Pass operator Cheniere Energy is now the largest consumer of natural gas in the US. “The pace of exports is pretty impressive,” ship broker Poten & Partners’ head of business intelligence, Jason Feer, told Bloomberg recently. The company “has been able to place cargoes with relatively little trouble and to a pretty wide variety of customers,” including those in Asia, Latin America and Europe.
With gas prices continuing to remain depressed and domestic stockpiles high, in part owing to a mild winter that has seen heating usage at lower levels than expected, this is a welcome outlet for domestic shale producers. Without Sabine Pass, prices would have been under further pressure that even recent improvements in technology and cost savings would not have been able to counter. As more capacity comes online, though, a significant upturn could be around the corner.
The past few years have seen considerable turbulence when it comes to gas pricing. In mid-2014, Henry Hub futures contracts were stable above US$4 per million British thermal units (US$110.64 per 1,000 cubic metres), with many predicting that this level would remain constant for some time. In 2016, however, a drop to below US$2 per mmBtu (US$55.32 per 1,000 cubic metres) owing to a lack of demand and abundant shale gas supply put a large number of producers under considerable pressure. At current prices of around US$3 per mmBtu (US$82.98 per 1,000 cubic metres), some of this pressure has been relieved, but margins remain tight and competition is intense.
For chemicals makers, fertiliser producers and domestic customers, though, this has been a boon. Feedstock prices have fallen, allowing firms to remain competitive despite major new facilities coming online in countries such as Saudi Arabia. Meanwhile, many home users are paying up to 50% less for their gas supplies than they were in 2008.
Despite this, shale gas production is now rising again after a slowdown last year. And even then, the Marcellus shale saw output rise by 11% to a record 5.1 tcf (144.4 bcm) in 2016 despite fewer wells being drilled as technology improved, longer laterals were drilled and new efficiency gains were achieved. Similarly, the Utica play has also boomed, while over in Louisiana, the Haynesville shale has seen output climb consistently every month since October 2016. Meanwhile, with new pipeline capacity coming online, many of the bottlenecks that have constrained production but supported gas prices in the past could be about to be removed.
Still, there are signs that this glut is about to be relieved. Dominion Energy’s Cove Point LNG export project in Maryland, supplied by output from the Marcellus shale, is due to begin operations before the end of this year. The facility, with a capacity of 750 mmcf (21.2 mcm) per day, will be the first of its type on the US East Coast.
And next year Kinder Morgan’s Elba Island facility in Georgia, with a capacity of 350 mmcf (9.9 mcm) per day will follow. This project is also set to be supplied by feedstock gas from the Marcellus play. At roughly the same time, Sempra Energy’s Cameron LNG project in Louisiana, which holds a permit to export 2.1 bcf (59.5 mcm) per day, is due to be completed.
This, combined with the start-up of a fourth train at Sabine Pass, paints a promising picture for US gas exports. According to the US Energy Information Administration (EIA), LNG shipments are expected to rise from 510 mmcf (14.4 mcm) per day in 2016 to 1.9 bcf (53.8 mcm) per day this year, and 2.79 bcf (79 mcm) per day by 2018. Indeed, the US has been forecast to become the world’s third largest exporter of LNG in 2018.
Two further facilities are also under construction. If these all go to plan, US peak capacity will be close to that of Qatar, the world’s largest LNG exporter.
Speaking at a recent LNG conference the Railroad Commission of Texas’ chair, Christi Craddick, said that her state was in the driving seat to capitalise on this growth.
“The export of natural gas represents one of the most promising economic opportunities of the new American shale boom,” she said. “As our country’s LNG export market grows, it will also help to position us as a global energy superpower.”
The effects of this could be wide-ranging. Already, the US shale industry has been credited with reducing the influence of countries such as Saudi Arabia and Russia through its oil boom. In the world of natural gas, the impact could be equally pronounced too, especially if these new facilities follow the path of the Sabine Pass project.
As Cheniere is not confined by long-term supply contracts, many importers have turned to US shipments on the spot market, giving the terminal the position of something of an industry bellwether. To date, cargoes have been sent to over a dozen countries, with demand from Asia and Europe particularly strong. Earlier this year, Poland purchased its first cargoes of US LNG, marking a significant milestone for one of a number of Central and Eastern European countries keen to lower their dependence on imports from Russia.
As it stands, only countries that have free trade agreements (FTAs) with the US can receive natural gas imports, a situation that has prompted some concern given US President Donald Trump’s protectionist policies. However, the recent trade agreement with China appears to encourage firmer deliveries between Sabine Pass and Chinese terminals, albeit while not changing any existing rules. If this does happen, though, US LNG derived from shale gas could be sailing to China with considerable regularity.
If this becomes the case, given the capacity of Sabine Pass, as well as the prospect of a fifth LNG train and more capacity being added at other facilities, spot market exports would still be large enough to react to peaks in demand globally. For energy security, this is a very welcome step, and one that is firmly driven by shale gas.