Steady As She Goes? - U.S. LNG Exports Grow in a Weakening, Highly Uncertain Market

New U.S. liquefaction trains and export terminals have added LNG to an oversupplied global market. International gas prices are at their lowest levels in several years, price spreads between the U.S. and destination markets have collapsed and — to make matters even worse — a coronavirus pandemic threatens to undermine LNG demand growth. U.S. LNG exports nevertheless have been increasing with each new liquefaction train that comes onstream, though, mostly because their long-term offtake contracts make cargo liftings relatively insensitive to global prices. The question is, will dire global market conditions somehow undo U.S. LNG production growth? Today, we discuss highlights from our new Drill Down Report on the future of U.S. LNG exports.

U.S. LNG exports have increased rapidly in the past four years. Exports began in early 2016 with the start-up of the first liquefaction train at Cheniere Energy’s Sabine Pass Liquefaction (SPL) in southwestern Louisiana. Since then, Sabine Pass has completed four more trains and five other export terminals, some with multiple trains, have come online. They include Dominion’s single-train Cove Point facility in Maryland; two trains each at Cheniere’s Corpus Christi, TX, terminal and Sempra’s Cameron LNG, also in southwestern Louisiana; two trains at Freeport LNG near Houston; and the first five mini-trains at Elba Liquefaction’s terminal in Georgia. Start-ups in 2019 alone included the Cameron, Corpus Christi, Freeport and Elba projects.

U.S. terminal operators exported an average of 5.6 Bcf/d during 2019 in the form of LNG. The highest monthly average last year was 7.7 Bcf/d in December, and exports continued to climb early in 2020 as still more new trains entered commissioning or commercial operation. And additional U.S. liquefaction capacity is on the way: projects under construction today will add a total of about 6 Bcf/d of capacity by mid-decade –– including 1.45 Bcf/d of it later this year and another 0.7 Bcf/d in 2021. And the Federal Energy Regulatory Commission (FERC) has approved construction of 12 projects on which work has not yet begun; their capacities totaling a further 20 Bcf/d or so. Not all those projects will advance past the planning stage soon, if ever, though. Market headwinds have made it harder and harder for projects to reach the regulatory and commercial milestones they need to achieve before they can progress to final investment decisions (FIDs) and construction. Still, with projects that have already entered service, the U.S. share of global LNG trade exceeded 10% for the first time in 2019.

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