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LNG growth to make US net natural gas exporter by 2016: report


The US will become a net exporter of natural gas by the first half of 2016, largely due to the expected rapid growth of the US liquefied natural gas export industry along with a boost in Mexican pipeline capacity and a drop in domestic demand for Canadian gas, analysts with Barclays Commodities Research said in a report Thursday.

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"In a shift of tectonic magnitude, the US is firmly on track to become a net exporter of natural gas, with far-reaching implications for the US economy, geopolitics, natural gas markets and the global LNG space," the report said.

Barclays analysts see US LNG exports, specifically six LNG export facilities it expects will begin shipping LNG by the end of the decade, as the largest driver shifting the US from a gas importer to a gas exporter by June 2016.

"Ultimately, LNG exports will likely have the greatest effect on the natural gas markets, both in the US and globally," the report said.

Barclays' 2016 estimate is a full two years ahead of the US Energy Information Administration's estimate that the US will be a net exporter of natural gas beginning in 2018.

In its Short-Term Energy Outlook released Tuesday, EIA backed this 2018 prediction, pointing to the expected launch of several proposed US LNG export facilities in fourth-quarter 2015 and growing domestic production, which has replaced Canadian pipeline imports and boosted pipeline exports to Mexico.

"EIA expects these trends will continue through 2015," the agency said Tuesday. "EIA projects net imports of 3.0 Bcf/d in 2014 and 2.5 Bcf/d in 2015, which would be the lowest level since 1986."

Many of these predictions, industry analysts claim, hinge on how quickly federal regulators approve the growing list of proposed LNG export projects.

While the Department of Energy is required to quickly approve applications to ship LNG to countries which have free trade agreements with the US, it can block or modify applications to ship to non-FTA countries. The DOE has approved just five applications to ship LNG to non-FTA countries, totaling 6.77 Bcf/d. There are 23 applications to ship a total of more than 28 Bcf/d to non-FTA countries awaiting DOE approval, according to the agency's latest update.

In its export forecast, Barclays predicts that six projects will be operational by 2020: Sabine Pass, Lake Charles Exports, Freeport LNG (which has received two, separate approvals from the DOE to ship to non-FTA countries), Cameron LNG, Dominion Cove Point and Southern LNG Company's Elba Island project. The Cameron and Southern projects are the only two still awaiting DOE approval to ship to non-FTA countries.

These facilities will turn the US into a top global LNG producer, behind only Qatar, by 2020.

"This would bring geopolitical and price diversification to the global LNG markets and re-draw regional LNG shipping trends, sending tankers sailing on longer trade routes," the report said.

It could also launch an era of long-term contracts linked to the Henry Hub natural gas benchmark, which the report called a cheaper alternative to oil-linked contracts.

"One of the greatest obstacles to linking long-term LNG supply contracts to gas remains the lack of an adequate gas price marker in the Pacific Basin," the report said. "With North America joining the LNG exporters' club, long-term Henry Hub-linked contracts open new opportunities for buyers to diversify price risks."

The US export boom is coming as the country has quietly transitioned away from gas imports, the report notes.

US natural gas imports have dropped 67% from their peak in 2007, with Canadian gas imports falling from 9 Bcf/d in 2001 to 5 Bcf/d in 2013 and imports of Canadian gas into the Northeast falling to historically low levels last year, Barclays said. With increased production in the Marcellus and Utica shales, the Northeast will likely become a net exporter by 2015 with US gas going to Canada's eastern provinces and displacing Canadian imports in the Midwest.

Barclays also estimates that gas exports to Mexico will climb from 2 Bcf/d in 2013 to 6 Bcf/d by the end of the decade as several pipeline expansions in that country "ramp up to full utilization."

--Brian Scheid,
--Edited by Jason Lindquist,