Liquefied Natural Gas (LNG) market sentiment is increasingly leaning in favor of substantial volumes of North American, especially U.S., cargoes heading to global markets, as ample supply is pushing rising shale gas production into export markets and beyond the reach of continental pipelines.
The U.S. Energy Information Administration (EIA) data currently points to a near doubling of American LNG exports in 2019, over the year before, while rating agency Moody's says global environmental regulations will bolster demand until renewable energies become more competitive making Asian and European energy markets particularly reliant on natural gas, much of it imported from the U.S.
The EIA projects that U.S. liquefied natural gas (LNG) export capacity will reach nearly 9 billion cubic feet (bcf) per day by the end of 2019, making it the third largest LNG exporter in the world behind Australia and Qatar. Currently, U.S. LNG export capacity is just shy of 5 bcf per day.
The U.S. first began exporting LNG from the Lower 48 states in February 2016, when the Sabine Pass liquefaction terminal in Louisiana shipped its first cargo. Since then, Sabine Pass’ expansion, and Cove Point LNG export facility going onstream, alongside several projects running ahead of schedule have consistently supported upbeat assessments.
Abundant supply and stricter environmental regulations will only further the drive as the North American natural gas industry goes global, according to Moody's.
"The industry is in the midst of transitioning from a regional industry towards a global one," says Amol Joshi, Vice President at Moody’s, and author of a new natural gas report by the rating agency.
"Plentiful supply is pushing into new markets beyond the reach of North American pipelines, while stricter environmental regulations will initially favor natural gas until renewable energy technologies gradually become more competitive."
Undoubtedly, the U.S. shale revolution has profoundly transformed the marketplace, Joshi says. At the same time, exports of LNG and piped exports to Mexico are contributing to rising demand, which is beginning to catch up with abundant supply.
Demand for U.S. natural gas is also rising for power generation, bolstered by environmental regulations that promote or mandate the switch to natural gas from coal and other refined fuels that emit far more carbon, while industrial use remains supportive.
Lower prices on the back of increased supply have likewise boosted demand, with solid demand set to support prices over the long term, Joshi adds.
As oil and gas majors head to the shale patch with an open mind on natural gas as well as enhancing their crude reserves, the medium term prospects for the U.S. natural gas industry appear pretty robust, says Regina Mayor, Global Sector Head, Energy and Natural Resources at KPMG.
"Of course, abundance of supply has to be tied to getting the product to the export terminals. The goal has always been to get the gas to the Far East, so that all parties get the maximum returns. In that respect, Asia remains the big prize, even though there are opportunities to take it to other markets including Europe."
That said, the natural gas market isn't likely to resemble the global marketplace for oil anytime soon, Mayor adds.
"Although natural gas is favored over coal, and supply is set to meet, or even exceed, demand as liquefaction facilities are rapidly developed – transportation costs and complex logistics, including import terminal construction in key markets, will likely keep natural gas prices from truly optimizing in line with oil despite the North American push."
Date: Mar 28, 2019