The US Can Be A Top Three Global LNG Exporter Before 2020

Mon, January 14, 2019

The United States has been exporting LNG since February 2016 when Cheniere’s (NYSE:LNG) Sabine Pass facility shipped its first cargo out of Louisiana. The terminal has since expanded from just one gas liquefaction facility (known as a ‘train’) to five, capable of processing over 3 billion cubic feet of gas per day (Bcf/d). Cheniere’s new Corpus Christi terminal in Texas is also up and running, with two more trains scheduled to be completed by 2021, totaling close to another 3 Bcf/d.

But Cheniere is no longer the only game in town. The Cove Point facility in Maryland – owned by Dominion Energy (NYSE:D) – has been exporting up to .75 Bcf/d of LNG since March of 2018.

As illustrated in the figure below, more terminals are either under construction or have been green-lit by Federal agencies. Not shown are thirteen additional projects pending approval for 2019.

All told, the United States produces about 90 Bcf/d of gas per day but is only capable of shipping some 3.6 Bcf/d via liquified natural gas. This makes it the fourth largest of the world’s 19 LNG exporting nations. Should all proposed facilities come online as scheduled, however, America’s LNG capacity would nearly triple to 8.9 Bcf/d by the close of 2019. This would place the United States just behind Australia (10.8 Bcf/d) and Qatar (9.9 Bcf/d), the number 1 and number 2 LNG exporters (as of December 2018). Malaysia currently occupies the number three position at 4.5 Bcf/d with Nigeria and Indonesia now lagging behind U.S. production. The chart below, reflecting 2017 figures, is a testament to America's progress over the course of 2018.

U.S. export capacity is ramping up at a pivotal time for the geopolitics of energy markets.

Russia’s iron grip over Europe’s energy supplies – exacerbated by Moscow’s war in Ukraine – has prompted many EU members to seek out alternative suppliers. New LNG terminals in the Baltic Sea and even Germany could be the foot in the door for U.S. producers and gift strategic leverage to policymakers in Washington, DC.

China is now the top importer of natural gas (second largest importer of LNG) and single greatest driver of new gas demand growth. The country is so gas hungry that despite the 10% import tariff levied by Beijing on American LNG, the PRC still purchased two tankers-worth from U.S. suppliers in December. This also serves as a testament to the competitiveness of U.S. LNG on the international market thanks to low domestic prices.

How is American gas so cheap? A surplus of gas from vast shale reserves and bottlenecks of mid-stream and downstream infrastructure have resulted in a domestic gas glut. Much of this supply growth comes from the prolific Permian basin, where there is so much gas that prices actually fell below zero in November last year, resulting in some producers actually paying others to off-take their gas. Talk about an arbitrage opportunity.

Low prices combined with regulatory constraints, local environmental activism, steel tariffs, and limited investor interest (relative to more profitable crude oil projects) means that additional gas pipeline capacity is hard to come by. And if producers can’t move it, they can't sell it.

Thankfully, some capacity relief is underway: The Permian Basin has around 14 Bcf/d of proposed pipeline capacity scheduled to commence service between now and 2022, including Kinder Morgan’s (NYSE:KMI) 1.98 Bcf/d Gulf Coast Express (GCX) gas pipeline and Permian Highway Pipeline. The latter is a Kinder Morgan-Apache Corporation (NYSE:APA) joint venture which received a final investment decision in September.

While infrastructure bottlenecks continue to pose a challenge to U.S. production and exports, the EIA is optimistic that the Permian’s natural gas pipeline capacity could quadruple to over 20 Bcf/d by 2021. Let’s hope they’re right.

So, will U.S. gas producers hit their resolution for 2019 – or 2020 at the latest– and muscle into the top three global LNG producers? Unless you like losing, don’t bet against America’s shale revolution.