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Just Can't Get Enough - LNG's Increasing Commoditization Driven by Rising U.S. Production

As recently as the mid-to-late 2000s, the U.S. was expected to become a major importer of LNG. Instead, the opposite occurred. Once forecast to need tens of millions of metric tons of LNG each year to meet its own power needs, the U.S. is now producing about the same amount and sending it out to Asia, Europe, and other overseas markets. That swing — from the expectation of being a major LNG importer to the reality of being a top-tier producer/exporter — has had a huge impact on the global market, and the influence of that reversal cannot be overemphasized. In today’s RBN blog, we look at how U.S. production has moved LNG closer to being a global commodity, the effect of growing U.S. production on the market, and prospects for future growth.

During the past few months, the U.S. has been battling with Qatar and Australia for the title of #1 LNG exporter, as we described in Three’s (Not Always) a Crowd. This king-of-the-hill fight is taking place less than six years after the first U.S. LNG export from Cheniere’s Sabine Pass facility. Perhaps more remarkable is the fact that the decision to proceed with U.S. exports only happened in 2012. Impressive as these achievements are, they should also be seen in relation to past LNG projections to appreciate their full market impact. The Energy Information Administration (EIA) estimated U.S. LNG export capacity to be 73 million tons per annum (MMtpa; or 9.7 Bcf/d) in 2021, with peak capacity of 89 MMtpa (11.8 Bcf/d). Previous EIA estimates called for Lower 48 imports of 64 million MMtpa (8.4 Bcf/d) by 2015 and 92 MMtpa (12.2 Bcf/d) by 2030. That turnaround has helped turn LNG from a specialty product sold point-to-point on contract toward becoming a global commodity — where prices are more easily discoverable and trading volumes are significant — and also fueled the growth of the spot market.

Possibly the most important characteristic of U.S. LNG is that it is mostly destination-flexible, allowing lifters to ship product to any importing market (other than those under U.S. sanctions), with deliveries to 37 different countries since 2016. The customers are a diverse mixture of (a) utilities such as Korea Gas, Osaka Gas, and Endesa; (b) portfolio players such as Shell, BP, Naturgy, and TotalEnergies; and (c) traders including Mitsubishi and Mitsui, plus a few independent oil companies (IOCs) such as Woodside.

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