U.S. hits energy milestone as exporter of natural gas
The United States became a net exporter of natural gas for the first time last month as liquefied natural gas shipped by Cheniere Energy combined with increased gas supplies transported to Mexico and Canada via pipeline.
Sandy Fielden, Morningstar’s director of oil and products research, attributed the milestone to the “shale invasion,” a reference to the vast quantities of natural gas unlocked through hydraulic fracturing, or fracking, of shale rock formations. The cheap and abundant supplies are now being shipped worldwide as LNG, helping to moderate LNG pricing globally.
Houston-based Cheniere became the nation’s first LNG exporter early this year with its shipments from its new Sabine Pass terminal in Louisiana near the Texas border. Now, six U.S. LNG export projects are under construction, including ones in Freeport and Corpus Christi. Just the U.S. projects under construction — not counting many more proposed ones under development — could export about 66.5 million metric tons of LNG a year once completed.
“Every cargo can theoretically be delivered wherever the best price is available, making the LNG market truly international,” Fielden said in a report.
American LNG will compete with local gas supplies in each part of the world, as well as abundant amounts of LNG coming from Australian LNG export facilities.
The U.S. projects were developed with the idea of exporting mostly to Asia, especially Japan and China, a key market for Australia LNG exporters. Sky-high LNG prices in Asia just four years ago have fallen roughly 80 percent because of increasing supplies.
Analysts forecast a glut in coming years as more projects come online, meaning supplies will outstrip demand until 2022 or even 2025.
As a result, most of Cheniere’s LNG is going to emerging markets in South American nations like Chile, Brazil and Argentina.
The oversupply isn’t a huge problem for projects under construction, such as the Houston pipeline company Kinder Morgan’s Elba Island project near Savannah, Ga. That’s because Kinder Morgan and other project owners secured 20-year contracts with buyers before construction began.
Royal Dutch Shell is buying most of the Elba Island LNG, said Kinder Morgan President and CEO Steve Kean.
Kean agreed the world has all the LNG it needs for the next several years, although a decision by China to shift to natural gas from coal could change that quickly. The Chinese government has become more interested in natural gas as a fuel for generating electricity as a way to improve the nation’s notoriously bad air quality.
Over the long term, Kean said, American LNG is better positioned to compete in global markets. In addition to liquefaction facilities that supercool natural gas into a LNG, the United States has extensive pipelines that transport gas from U.S gas from shale fields and storage facilities to hold it. Compare that to potential competitors, such as Mozambique, Kean said, where all this infrastructure still needs to be built.
“In the United States, if you build the liquefaction facility,” Kean said, “the whole continent comes to you.”
“Every cargo can theoretically be delivered wherever the best price is available.” Sandy Fielden of Morningstar