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Expanding US LNG export capacity to face changing global dynamics

Increasing competition among suppliers and changing demand patterns across the world are poised to characterize global LNG trade, as the U.S. gears up to take its place as the world's third-largest LNG exporter.

The International Gas Union's, or IGU's, "2017 World LNG Report," covering the year 2016 shows Qatar as the world's largest LNG exporter with exports at 77.2 million tonnes, followed by Australia with 44.3 million tonnes, while the U.S. was the third to the last among the 18 exporting countries with exports at 2.9 million tonnes. Australia posted the largest year-over-year increase of 15.0 million tonnes, while the U.S. logged a 2.5-million tonnes gain but was a distant second, as the former ramped up its already significant liquefaction capacity and the latter opened its first LNG export facility in the Lower 48.

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Not until 2016, with the start of operations of the Sabine Pass terminal did the U.S. emerge as a major LNG exporter. U.S. gross LNG exports that have been miniscule over recent years grew to 0.5 Bcf/d in 2016, but are poised to increase further to 1.8 Bcf/d in 2017 and 2.8 Bcf/d in 2018, according to the U.S. Energy Information Administration.

Industry observers have projected that the global LNG supply growth in the medium term will continue to be driven primarily by Australia and the U.S.

Existing liquefaction capacity in the U.S. made up of the Kenai LNG facility and the first three trains of the Sabine Pass terminal was at 2.3 Bcf/d as of the first quarter of 2017, data from the EIA's March 2 "Natural Gas Weekly Update" showed. This should expand to roughly 11.0 Bcf/d by 2019, according to SNL data, once the six new LNG projects presently in various stages of construction in the U.S. become operational.

The Sabine Pass terminal in Cameron, La., will see the addition of a fourth train in November and a fifth train in August 2019. A sixth train has been fully authorized but still lacks a final investment decision.

The Cove Point facility in Calvert, Md., that was 84% complete as of early March is slated to enter service late this year, while the Elba Liquefaction Project in Chatham, Ga., is scheduled to enter service in 2018 and to become fully operational in 2019. Also slated to enter service in late 2018 through 2019 are the Freeport LNG terminal in Brazoria, Texas; the Hackberry-Cameron LNG facility also in Cameron, La.; and the Corpus Christi Liquefaction Project in San Patricio, Texas, which are all currently under construction.

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Meanwhile, Australia's LNG export capacity pegged at 6.2 Bcf/d in March 2016 is projected to reach 11.5 Bcf/d by 2019, should all additional LNG capacity under development become fully operational as scheduled, the EIA said in a "Today in Energy" report for March 31, 2016.

The Gorgon plant in western Australia just commenced operations for its third and final train in late March, while the Prelude, Wheatstone and Ichthys LNG projects also in western Australia were under construction as of the date of publication of the EIA report and are expected to enter service through 2018. The Queensland Curtis, Gladstone and Australia Pacific terminals in eastern Australia that have been either partially or fully commissioned as of the report's writing are expected to reach full completion by 2019.

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Driven by growth in the U.S. and Australia, global liquefaction capacity is forecast to reach over 460 million tonnes by 2021, according to S&P Global Platts. Global LNG demand is seen reaching 360 million tonnes to 380 million tonnes over the same period, of which 80 million tonnes is expected to be from new or nontraditional demand countries and "conceptual demand," which refers to countries that have discussed importing LNG but as of yet have no concrete plans for doing so.

Already, traditional importers have begun to show signs of weakness, and new importing countries have begun to pull market share away from traditional buyers.

"LNG trade [in 2016] was bolstered by large markets such as China, India and Egypt, as combined demand in Japan and South Korea declined slightly," the IGU said. "New importers from 2015 continued to increase volumes, ramping up at a rate faster than had been standard in the past."

Top world LNG importers Japan and South Korea contended with increased competition from other fuels amid the restart of nuclear plants and the preference for coal generation, among other reasons, and saw imports decline by 2.2 million tonnes and remain almost flat with a marginal 0.4 million tonne increase, respectively, for the year, according to IGU data. Top-three importer China, however, posted the largest growth year on year of 6.9 million tonnes.

As this occurred, India, which was described by the IGU as an "underserved gas market," pulled in an additional 4.5 million tonnes of LNG in 2016 that ranked as the second-largest LNG import gain for the year. Egypt, Pakistan and Jordan, which only began importing LNG in the previous year, immediately followed behind, posting a total import gain of 7.1 million tonnes year on year, of which 4.3 million tonnes was imported by Egypt alone. Egypt has pulled in a total of 10.3 million tonnes of LNG in its first two years as an importer, besting China's previous record of 3.9 million tonnes in 2006/07.

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The IGU anticipates the trend of declining LNG demand will continue for the "foundational importing countries" of Japan and South Korea this year, as the major economies of China and India, alongside new LNG importers, such as Pakistan, Egypt and Jordan, continue to contribute to demand growth. Further out, S&P Global Platts sees strong demand growth in India, Pakistan and Bangladesh in South Asia through the next five years, accompanied by demand gains driven by terminal expansions and expiring contracts in Thailand, Malaysia, Singapore and Indonesia in Southeast Asia.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc. To view a complete list of LNG projects in development, visit our Natural Gas Projects page.