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In This List

New export frontiers for US oil, gas

Essential Energy Insights - September, 2020

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New export frontiers for US oil, gas

Market upheavals around the world are setting the scene for a potential boom in American oil and gas exports.

In the two years since the U.S. Congress voted to end the crude oil export ban, shipments abroad have surprised and disrupted international markets. From Italy and the U.K. to China and Singapore, U.S. crude cargoes have skyrocketed with no signs of slowing down or tapering off. And because of the wide spread between the world's primary price benchmarks, American shale oil continues to reach new destinations.

"The wide range of barrels on offer can compete on both price and quality with global crudes in key demand growth regions, with U.S. medium, sour barrels competing head on with Mideast OPEC crudes while light, sweet shales can displace West African and Atlantic barrels," analysts at RBC Capital Markets said in an Oct. 19 note to clients.

According to Bob McNally, founder and president of energy consulting company The Rapidan Group, OPEC and its partners have welcomed U.S. crude exports as a way to target inventory cuts.

"OPEC has been vexed by this stubborn oil glut that hasn't gone away as fast as they had hoped, so they want to drain the most visible oil storage areas where we have the best and most frequent data, which is the United States," he said in an interview. "I bet you that OPEC sees the lifting of the export ban ... as a very helpful component of their strategy."

In Asia, as gas buyers in China ramp up purchases of LNG to meet winter heating needs, prices for spot cargoes from the Gulf Coast are surging and fueling optimism among U.S. liquefaction project developers trying to clinch long-term contracts to advance their projects.

Record-breaking Chinese LNG imports drove spot LNG prices in Asia to a three-year high of $10.50/MMBtu in mid-December, according to S&P Global Platts. Estimated profit margins for cargoes from Cheniere Energy Inc.'s Sabine Pass reached $4.58/MMBtu on Dec. 14. China is responsible for roughly 40% of growth in global LNG demand since 2016, and a government-led initiative to reduce airborne particulates by more than 15% year over year is expected to increase the country's gas consumption even more.

"We are very bullish on China as a customer, and this ... demand increase [is] happening faster than most have anticipated," said LNG Ltd. CEO Greg Vesey.

Nearly 70% of U.S. LNG went to Asia in October, according to the most recent data from the U.S. Department of Energy. China and South Korea each imported more than 21 Bcf. About 6.7 Bcf went to Japan, and 3.1 Bcf landed in Taiwan.

Saudi Arabia is also shopping for American natural gas, a development industry observers said shows how U.S. shale gas is transforming global energy markets. Charif Souki, the co-founder of U.S. LNG export hopeful Tellurian Inc. and the former CEO of Cheniere, said in an interview that his new company is marketing to Saudi Arabia, although he added, "We talk to everybody."

"They need gas for their western province, and it's a lot cheaper to bring in LNG than to build a pipeline from the eastern province, where they have the oil and gas reserves, all the way through the country to the western province," Souki told S&P Global Market Intelligence.

Jason Bordoff, founding director of Columbia University's Center on Global Energy Policy and a former energy adviser to former President Barack Obama, said on Twitter that the possibility of U.S. LNG making it to Saudi Arabia is "a stunning reminder of how dramatically shale has transformed the energy landscape."

"For 4 decades, US energy policy has obsessed over dependence on Mideast oil," he tweeted. "Now Aramco is looking to invest in US supply & import US gas."

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.