Ship Ahoy! U.S. Natural Gas Flows and Prices Are Now Inextricably Tied to LNG Export Markets

Three years ago, U.S. Lower-48 LNG exports were zero. Today that number is above 3.0 Bcf/d. Three years from now, U.S. exports will make up about 20% of the global LNG trade. Perhaps even more momentous, LNG exports will equal 10% of U.S. gas demand. That’s more than deliveries to the entire residential and commercial market sectors during the six summer/shoulder months each year. All of which means that U.S. LNG exports are quickly becoming a much more important factor in both domestic and international markets. The U.S. gas market is no longer an island. In fact, the long-awaited integration of the U.S. into global gas markets is upon us, with significant implications for infrastructure utilization, trade flows and of course, price. To make sense of these new market realities, it is necessary to assess the gas value chain from U.S. wellhead to global destination — in effect, to follow the molecule from the point of production, through pipeline transportation to liquefaction and export, and from the dock to destination markets. That’s exactly what we will do in the blog series we are kicking off today.

We’ve been talking about the growing influence of LNG exports in the RBN blogosphere for quite some time. Our blogs on the topic have become more frequent since the startup of Sabine Pass Train 1 in 2016. We examined the impact of exports from that Cheniere Energy-owned facility on regional gas flows in Feels Like the First Time, and considered the likelihood LNG would eventually become a major factor in the U.S. supply/demand balance. We chronicled more steps along the way in Train Kept A-Rollin' and Roll With Me Henry. A few weeks back, when the Cove Point LNG export terminal came online, we looked at the logistics of inbound gas flows in What's Going On, and reviewed how local market flows may impact outbound export volumes. That’s a good example of why U.S. LNG will be such a different animal for the global market to handle.

Over the past few decades, most LNG liquefaction plants around the world were built in producing regions where the only viable market alternative for gas production is expensive liquefaction and export. Any gas produced must be exported in the form of LNG, meaning that once the liquefaction plant is built, it is a supply-push market. If the LNG doesn’t move, the gas production must be shut in. Consequently, most LNG commercial deals in the global market are long-term arrangements that guarantee that LNG offtake will happen and will do so at a price high enough to justify investment in the gas production, liquefaction and export facilities.

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