When it comes to U.S. exports of super-cooled natural gas, all eyes have been on Cheniere Energy Inc.'s Sabine Pass LNG terminal in Louisiana. But American LNG exports are just just getting started.
Six projects under construction are poised to bring online the equivalent of more than 9 Bcf/d of LNG production capacity by the end of 2019 — nearly five times what the U.S. is capable of exporting now. That wave of capacity is coming as the global market is working through a supply glut spurred in part from massive volumes coming out of export giants Qatar and Australia.
Since shipping its first cargo in February 2016, Sabine Pass had exported a total of 330 Bcf through March. A fourth liquefaction train expected to enter service in November will bring the terminal's LNG production capacity to roughly 18 million tonnes per annum, or about 2.4 Bcf/d when using the U.S. Energy Information Administration's conversion method.
While Sabine Pass appears to be exporting near its capacity, the coming surge has led some industry observers to question how actual exports will measure up to production capacity in the face of steep competition for limited demand.
"The big unknown is the world market, and where they're going to stick the equivalent of Qatar in actual volumes," said Rick Smead, managing director at RBN Energy. "So there's a very good chance that the capacity will be there, but the demand on the U.S. market will be on and off."
On the sidelines of a recent event in Washington, D.C., chairman of the international energy consultancy FGE Fereidun Fesharaki said the flood of capacity leaves open the possibility that 10% to 15% of new U.S. LNG export capacity could be temporarily shut in over the next few years.
For U.S. LNG to be occasionally idled, prices in Europe will have to be "extraordinarily low," said Jason Feer, head of business intelligence at oil and gas ship broker Poten & Partners, who sees the bulk of new U.S. LNG coming online over the next few years finding a home in Northwest Europe.
While the European market is generally flexible enough to absorb large volumes of LNG, low prices in the region would incentivize gas consuming countries to look closer to home for supplies. Feer said that scenario could play out "at some points of the year," as steep competition from Russia's state-owned Gazprom and top LNG producers such as Qatar push prices lower.
Back in the U.S., the gas industry is generally in agreement that even at full capacity, production will be able to ramp up to respond to the increase in demand. "If the [global] demand is there, the ability incrementally for the U.S. to supply that market will be there also," said Chris McGill, vice president of energy analysis at AGA. "I can't really tell you that all of that gas is going to be used, but the United States is a good trading partner [and] a good business partner ... how that develops in the future just utterly remains to be seen."
Other markets to watch include Japan, where the country is looking to restart its nuclear fleet following the 2011 meltdown of the Fukushima Daiichi plant, and China, which research firm Wood Mackenzie has said will surpass Japan as the world's largest importer as its gas-to-power demand grows 366% from 2016 to 2035. Industry observers have also pointed to the importance of newer markets, such as Pakistan and Thailand, which each received their first cargoes in March.
And while a global glut will likely stick around for the next few years, market watchers see better times ahead beginning in the early 2020s. Fesharaki even predicts a "severe" LNG shortage replacing the oversupply that has characterized the LNG market since the U.S. made its debut, which he says could begin as early as 2024.
That bullish forecast stems in part from an inability for U.S. export hopefuls to create capacity beyond projects under construction. Although a long list of export terminals have been proposed in the U.S., a lack of interest from overseas buyers to sign long-term contracts when the market is awash with LNG could keep project sponsors from awarding final investment decisions.
Even with major regulatory permits in hand, the Lake Charles, Magnolia and Golden Pass LNG export terminals still await funding decisions. Several other projects are seeking approval from the Federal Energy Regulatory Commission, which is tasked with the environmental review and authorization of liquefaction and export terminals and the pipelines that supply them.
"Can you stay in business until the market changes? That is the big question," Fesharaki said. "I think many of them will give up and move on ... because they are so heavily leveraged."