Future of LNG supply

The development of unconventional gas sources inside and outside North America, the trajectory of gas demand in Asia, and the evolution of oil prices will influence future global LNG supply.

The US started exporting LNG from the Gulf Coast in 2016. Australia will be an exporter on a scale to overtake Qatar. The number of buyers and sellers is expanding. Total LNG production has quadrupled over the last two decades and roughly doubled its market share from 5 percent to 10 percent of natural gas consumed.

By 2020 additional LNG capacity additions totaling 164 billion cubic meters (bcm) will have come into the market, of which 90 percent will come from Australia and the United States. This, combined with slowing demand, has led to a situation of oversupply, which is expected to last until at least 2020.

Global LNG supply competition will be intensifying. Exporters from North America (the US and Canada) aim to export LNG in competition mostly with projects in Africa, Australia, and Russia.

Strengths and weaknesses of North American LNG exports

The United States is a “low cost” gas producer. Abundant unconventional gas resources are found across several plays, including the highly prolific Marcellus and Utica shales.

US liquefaction companies are well positioned to compete, with flexible delivery contracts and direct access to European markets along with increased access to Asia via the expansion of the Panama Canal.

US construction costs are comparatively low, especially for brown-field liquefaction projects, i.e., that will convert existing import terminals that have already secured environmental approvals for existing facilities. Additionally, low US energy prices provide a construction cost edge (Boersma, p. 8).

US LNG contracts are flexible, lacking “destination clauses” that limit re-sales. Other suppliers use long-term, oil-based agreements to send gas only to specific nations. Buyers of US LNG have the freedom to ship the fuel to anywhere in the world.

An unprecedented 150 mtpa of LNG export capacity will come online between 2015-2020 and 64 mtpa of it will originate in the United States. There are currently five new LNG projects under construction on the Atlantic and Gulf Coast: Sabine Pass (22.5 mtpa), Freeport LNG (13.2 mtpa), Dominion Cove Point LNG (5.75 mtpa), Cameron LNG (13.5 mtpa), Corpus Christi LNG (9 mtpa). The major concern for all of these projects finding buyers for these volumes.

Unconventional gas development in Canada trails US production, and in some parts of the country gas infrastructure is less developed than in most parts of the United States. It is unlikely that Canada will have a LNG terminal up and running before the end of the decade. Canadian projects are also opposed on a number of environmental and commercial grounds (Boersma et al., p. 15).

References:

• Tim Boersma, Charles K. Ebinger & Heather L. Greenley, “An assessment of US LNG exports,” Natural gas issue brief #4, Brookings Institution, November 2015.