In the first six months of this year, nearly 50 Bcf of U.S. LNG was exported. We will be surging to a dominant role in less than five years, with five terminals operating on the Gulf Coast and in Maryland by 2020.
U.S. LNG has already been shipped to the Middle East, Europe,South America, Asia, and perhaps could soon reach the most energy-deprived region on Earth, where a tragic 650 million humans have no electricity whatsoever: “Sub-Saharan Africa May Help Soak Up Global LNG Glut.”
Started in February, Cheniere Energy’s Sabine Pass in Louisiana is the first LNG export plant in the Lower 48 states and has shipped to 11 different countries in the first six months in operation. Overall, we have seen over 25 tankers of LNG shipped from the Sabine Pass terminal. And on 22 August, U.S. LNG reached the most vital incremental market of them all, arriving at the Chinese port of Yantian in Shenzhen near Hong Kong. This was the first LNG tanker to transit the newly expanded Panama Canal connecting the Atlantic and Pacific oceans.
Iran, for instance, with Western-imposed sanctions lifted in January and a BP-reported leading 1,201 Tcf of proven gas, is upping marketing efforts to Europe, India, Pakistan, China, and Japan (here). Russia is also centered on Asian customers via pipelines and LNG. The Yamal LNG Megaproject has gotten loan deals with Chinese banks worth over $12 billion, and is now “on track and on budget.”
Even ally Australia is competition for us, as the Aussies could become the largest LNG exporter by 2018 thanks to limited incremental domestic needs and a $200 billion build-out. For example, McKinsey has Australia’s gas power declining 25% by 2030 (here), while production could more than double to 6 Tcf by 2025. Over the past 10 years, Australia’s proven gas reserves have soared 60% to 125 Tcf.
Globally, the annual capacity of liquefaction plants will increase by about 40% to around 60 Bcf/d by 2021 (note: today, global liquefaction capacity is about 25% higher than the LNG market itself). The global economy is growing though, by some $3 trillion in real GDP per year (here), and this will continually drive up gas demand. Natural gas, after all, is the second largest energy source in the developed world at 28%, and gas is a rapidly rising 21% of all energy in the developing world, compared to just 13% a decade ago.
This is driving up capital expenditure on LNG facilities and “total spend could increase to a whopping $241 billion in 2016-2020 – more than a third higher than total spend during the last five years” (here). But, the $5.5 Panama Canal expansion completed in June will give U.S. LNG shippers a faster and cheaper route to key importers in Asia and Latin America, the latter having taken nearly 60% of U.S. LNG exported thus far.
And football-field-size tankers can now pass through the shortcut, which allows for over 90% of the global LNG fleet to now pass through, compared to 6% before. EIA says 550 tankers of U.S. LNG a year could be passing through the Panama Canal by the early-2020s.
Panama Canal Expansion Will Offer Material Support to the U.S. LNG Export
Sources: Bloomberg; EIA; JTC
U.S. LNG is still sold in small amounts, but more is wanted because the contracts are flexible, lacking “destination clauses” that limit re-sales (note: “FTC reviewing whether no-resale LNG contracts are illegal”). Other suppliers use long-term, oil-based agreements to send gas only to specific nations. Buyers of U.S. LNG have the freedom to ship the fuel to anywhere in the world, encouraging the spot trading that improves liquidity and is a rising 30% of the global market.
And oil-based LNG will be less appealing as oil prices rise: one expert sees $100 oil “within the next four years” (here). So, although enticing today, LNG importers should know that signing oil-based contracts could ultimately prove a big mistake: IEA sees global oil oversupply evaporating as early as the end of this year (here).
In the short-term, EIA has our gross LNG exports averaging 1.3 Bcf/d in 2017 and sees the U.S. becoming a net natural gas exporter in the second half of next year. We could become the third largest exporter by 2020, and reach 12-14 Bcf/d in 2025, which is about a third of the current market.
