US Emerging as a LNG Powerhouse

Last month, ExxonMobil and Qatar Petroleum announced that they will proceed with construction of the >$10 billion Golden Pass liquefied natural gas (LNG) export facility on the Texas Gulf Coast. This project would export up to 2.2 billion cubic feet per day (Bcf/d) of LNG, and is just one of more than 50 LNG export projects to be approved by the U.S. Department of Energy (DOE).

According to the DOE, since the startup of Cheniere Energy’s Sabine Pass LNG export terminal in February 2016, about 2 trillion cubic feet (Tcf) of domestically-produced LNG have been exported to 34 different countries. Cheniere Energy was the first major LNG exporter, but they were joined last year by Dominion Energy, which opened its Cove Point LNG export terminal.

This is just the tip of the iceberg, however, as the LNG export market is projected to surge over the next three decades. You can thank the shale boom for that.

The Shale Boom Upended Energy Markets

LNG export growth is the latest example of how the U.S. shale boom has disrupted global oil and gas markets. Advances in hydraulic fracturing and horizontal drilling turned an expected natural gas deficit into a huge surplus.

Following years of stagnant production, U.S. natural gas grew 50% from 2005 to 2015 to reach 72 Bcf/d. In the process, the U.S. became the world’s largest natural gas producer, with 20 percent of the global production share.

This surge of production kept U.S. natural gas prices in check. Natural gas spot prices that had regularly spiked above $10/MMBtu fell below that level in 2008, and since 2010 have only been above $5/MMBtu during brief cold weather events.

Natural gas demand has kept pace.

Natural gas exports to Mexico have now exceeded 5 Bcf/d, equal to about 7 percent of U.S. daily production. Consumption by the electric power sector increased by nearly 50 percent from 2005 to 2016, reaching 27 Bcf/d. Industrial demand has also increased by 30 percent as some manufacturing relocated to the U.S. to take advantage of low gas prices.

The Coming LNG Export Flood

But the Energy Information Administration (EIA) is betting that the next big surge of demand is going to come from LNG exports. In its Annual Energy Outlook (AEO) 2019 with projections to 2050, the EIA projects that U.S. LNG exports will quintuple from an average of 2.8 Bcf/d in 2018 to 14 Bcf/d by 2050.

The EIA projects a 5.1 percent annual growth rate in LNG exports from 2018 to 2050. If that outlook is correct, in 2050 LNG exports would consume an estimated 12 percent of U.S. natural gas production, which itself is forecast to rise by nearly another 50 percent between now and 2050.

The global LNG trade is currently dominated by Qatar and Australia. In recent years, Qatar has been comfortably in first place, exporting about 10 Bcf/d. But the EIA projections would put U.S. exports about 40 percent ahead of Qatar’s current export level.

Can Production Keep Pace?

To date, most of the U.S. natural gas production growth has been in the Appalachia Region. Appalachia production has exploded from below 2 Bcf/d in 2009 to more than 30 Bcf/d in 2018.

The EIA forecasts that the Appalachia will continue to produce 52 percent of cumulative production of U.S. shale gas through 2050. But the associated natural gas (co-produced with oil) in the Permian Basin is also soaring. Natural gas production in the Permian Basin has reached 13 Bcf/d, the same level as the Appalachia Region in 2013. Permian gas production has doubled in just over two years and is now second only to the Appalachia Region.

Further, Permian Basin gas production should continue to grow along with the region's oil. A new assessment by the U.S. Geological Survey (USGS) estimated that there are 281 trillion cubic feet of undiscovered, technically recoverable natural gas in the Permian. That's enough gas for 58 years of Permian production at 2018 rates, which should help feed the monster LNG demand growth that is forecast in coming decades.