What Should Be the Right Amount of LNG for the US to Export?

What Should Be the Right Amount of LNG for the US to Export?

The factors in determining how much LNG the U.S. should export include: 1) gas reserves and how much excess gas the US can produce. At some point the shale gas fields are going to begin to contract in production as the core areas get depleted. As fields deplete the cost to produce will rise and the cost of gas will rise. However, this is probably far into the future. 2) demand for LNG. As long as the cost remains low demand should remain high. As countries seek to decarbonize natural gas can replace coal. As developing parts of Asia continue economic growth there will increase demand. 3) receiving terminals and infrastructure in receiving countries – as more capacity to receive and transport LNG is built there will be more demand. Other factors include FERC approvals, ability to build pipelines in the US, and decarbonation scenarios in receiving countries.  

Europe consumes much more natural gas than it produces and so has a need to import gas from other countries. Gas currently makes up about a quarter of European energy use and is expected to rise to about 30% as coal, oil, and nuclear lose market share. Some comes from Russia via pipeline but some countries, particularly the former Soviet bloc countries, do not like being beholden to Russia for necessities like natural gas. Thus, they are willing to pay a little more for US LNG. According to the Forbes article by Jude Clemente referenced below the utilization of European LNG terminals for receiving gas is underutilized, avg. about 30% utilization. Another issue for Europe is declining gas production in the North Sea, Norway, and the Netherlands – expectations are for European gas production to be half of what it is now in 20 years. That will likely lead to import terminal utilization rates to 70-90%. Clemente thinks there is plenty of room for both the US and Russia to have significant market share.

US LNG exports were about 2.8 BCF/day in 2018 with half of that going to Asian countries. What BTU Analytics calls Wave 2 of LNG exports coming online from 2022 to 2025 will also focus mostly on Asia. Asian LNG imports have increased by 10BCF/day from all countries since 2010. According to BTU Analytics total US export capacity will reach as much as 15BCF/day by 2022 and possibly higher than 35BCF/day by 2025. Surely, much of that export capacity, if it even happens, will not be fully utilized as that would be over 10 times current exports and the high end between 1/3 and 1/2 of what the US produces for domestic consumption. At some level of exporting it will affect domestic supply and affect domestic prices as well as export prices. My current guess is that somewhere around 10-15 BCF/day will be as much as the US can export. This is in line with predictions from a few years ago. I suspect the lower end of that range will be more accurate. Other issues include the slow process of pipeline infrastructure buildout as regulatory and public opposition issues continue, decarbonization plans of receiving countries, improving economics for wind, solar, and storage, and of course cost compared to other energy sources. LNG exporting does provide some price leverage for US gas producers to guard against oversupply caused by reduced demand due to things like warm winters. It should help keep gas prices from being too volatile and help the negative basis differential that has long plagued the Northeast producers.

References:

Europe Needs More US Liquified Natural Gas – by Jude Clemente, in Forbes, Dec. 7, 2018

US LNG Wave 2: Tidal Wave or Flat Seas – by Anna Lenzmeier, in BTU Analytics, Jan 8, 2019