14
LNG
INDUSTRY
APRIL
2016
companies to submit dozens of applications to US energy
regulators for permission to export LNG and build
liquefaction terminals. The issue now, however, is not that
the domestic supplies of natural gas are not there for
export, but that the global gas market has been turned on
its head since the gas export frenzy began. Global prices
for natural gas have collapsed due to the drop in the oil
price and weakened gas consumption growth in key
gas-importing markets.
Expectations of lucrative arbitrage opportunities
(especially in Asia) for North American LNG exporters have
been dashed for the time being. The outlook for global
LNG is now bearish, in marked contrast to the bullish
expectations of 2011 – 2013. Nevertheless, an LNG cargo
has now been exported and, by 2020, the US will be one of
the major global LNG exporters, alongside Qatar and
Australia. The difference is that, due to the current tough
market conditions, US LNG projects that have already been
sanctioned may take longer to produce to capacity, while
the rate of further project sanctioning will stall in the nearer
term.
To export or not to export
The US shale gas production boom that began around
2009 – 2010 generated a hotly contested debate about
the future of the US gas market. Large, domestic users
of natural gas, such as the petrochemical industry and
utilities, cautioned against prioritising the export of the
US’ shale gas bounty in the form of LNG out of fear that it
would lead to steeply rising domestic gas prices. However,
the oil and gas industry urged the Obama administration
not to stand in the way of the development of a US LNG
for export sector, as it represented a unique opportunity
not just for the US to become a major energy exporter, but
also for the country to become an influential player on how
the global gas market operates.
Global gas exports (both pipeline and LNG) are
dominated by a few suppliers, such as Russia and Qatar,
who mainly utilise oil-indexed pricing and long-term
contracts when selling gas to consumers. Furthermore, the
North American, European and Asian gas markets are quite
distinct, meaning that the gas trade is not quite as fungible
compared to how the global oil trade operates, with its
multiple sellers and buyers all over the globe. Significant
volumes of US LNG entering the market would not only
provide competitive pressure on existing exporters, which
would benefit large gas-importing economies in Europe
and Asia, but contribute to making regional gas markets
more inter-connected and liquid.
Project sanctioning begins in
earnest
The debate on whether the US should export LNG has
largely moved on, with the US Department of Energy
(DOE) granting approval for several companies to export
LNG to countries that do not have Free Trade Agreements
(FTAs) with the US. As of February 2016, there were 16
such approvals given by the DOE, with a further 30 under
review, for a total of 47.2 billion ft
3
/d in the regulatory
pipeline. However, the volume of LNG that will end up
being exported from the US is unlikely to be near this
level, as it exceeds the total amount of global LNG
exported in 2015. In addition to receiving export approval,
energy companies must also receive approval from the
US Federal Energy Regulatory Commission (FERC) to
construct liquefaction facilities. This is done after a rigorous
inter-agency process, involving environmental and safety
reviews, as well as public consultation.
As of January 2016, FERC had approved six such
liquefaction projects (see Table 1). Of these, one has begun
operation, four have been sanctioned and are under
construction, and one has been sanctioned, but is not yet
being built. Nearly 83 million tpy in liquefaction capacity
has been approved, of which all should have begun
construction by 2019. This would put the US ahead of
Qatar (currently the leading LNG exporter) in terms of
liquefaction capacity, as the Gulf state has a capacity of
approximately 77 million tpy. By the end of this decade,
Australia will have approximately 85 million tpy in
liquefaction capacity, with five projects having come online
since 2012 and a further
three currently under
construction. By 2020,
therefore, the three
largest LNG exporters
will be Australia, the US
and Qatar. According to
FERC, a further 20 US
LNG export projects are
also awaiting regulatory
approval, but, given the
current market
conditions, it is unlikely
that most of these
projects will go ahead
even if they are
approved. Nonetheless,
the amount of LNG
capacity already
sanctioned is already
significant.
Table 1.
US LNG terminals approved by FERC
Terminal
Operator
Capacity
(million tpy)
Trains Status
Estimated first
Train start date
Sabine Pass
(Louisiana)
Cheniere/Sabine Pass
LNG
27
6
Operating (Train 1), under
construction (Trains 2 – 5),
not under construction
(Train 6)
February 2016
Cove Point
(Maryland)
Dominion – Cove
Point LNG
5.2
1
Under construction
June 2017
Hackberry
(Louisiana)
Sempra – Cameron
LNG
12
3
Under construction
March 2018
Freeport
(Texas)
Freeport LNG
13.2
3
Under construction
October 2018
Corpus Christi
(Texas)
Cheniere – Corpus
Christi LNG
9
2
Under construction
October 2018
Lake Charles
(Louisiana)
Southern Union –
Lake Charles LNG
16.45
3
Approved/not under
construction
2Q19
Sources: Federal Energy Regulatory Commission (FERC), World Gas Intelligence
