Starting in 2016, the United States began exporting increasing amounts of liquefied natural gas (LNG). The shale gas revolution, competitive prices and flexible contracts are making it possible for the US to take on a strategic role in international markets. Additionally, the recent opening of the Sabine Pass terminal and the expansion of the Panama Canal have opened up new shipping routes. Thanks to all these factors, according to Victoria Zaretskaya, an economist at the Energy Information Administration’s Office of Petroleum, Natural Gas and Biofuels Analysis, "the United States became a net exporter of LNG in March 2016 and is expected to become a net exporter of natural gas by the middle of 2017."
Sabine Pass: the way abroad
With its immense deposits, which in 2014 amounted to 388,841 billion cubic feet, the United States is the world’s largest natural gas producer. Also in 2014, the country’s shale gas reserves totaled 199,684 billion cubic feet. The presence of these vast resources and the use of new technologies have enabled the USA to enhance its local gas liquefaction capacity, increasing LNG exports to foreign markets. According to the EIA’s Annual Energy Outlook for 2016, LNG exports are set to grow by 12.7 billion cubic feet per day by 2025 and another 18 billion cubic feet per day by 2040.
It was the opening of the Sabine Pass terminal in February more than anything else that opened up international markets to American LNG. So far, 109 billion cubic feet of LNG from the Louisiana facility have been exported to eleven different countries, especially South America, Asia (led by India and China) and the Middle East (UAE, Kuwait and Jordan). Here the presence of American LNG could reverse the region’s traditional energy routes. In fact, some Middle Eastern countries are obliged to turn to exports to meet their energy needs in spite of having their own natural gas reserves, since they lack the resources to develop them.
The expansion of the Panama Canal has also benefited US exports "with significant repercussions," enabling the country to reduce shipping times and transport costs for bringing LNG from the Gulf Coast to key markets in Asia and the western shores of South America, providing additional access to heavily "regionalized" markets, according to Zaretskaya.
Victoria Zaretskaya is the Lead Operations Research Analyst at United States Energy Information Administration. She also works as an Economist at the Energy Information Administration's Office of Petroleum, Natural Gas and Biofuels Analysis.
Europe among potential buyers, first shipments to Portugal and Spain
Another market that could prove particularly attractive for US gas is Europe. Recently, a shipment of American LNG was sent in small quantities from the Sabine Pass terminal to Portugal and Spain. "Europe," Zaretskaya explains, "represents a highly attractive market thanks to its geographic location, regasification capacity and growing demand for natural gas as a means for generating electricity. The latter has to do with the need to reach certain environmental targets by using more natural gas and renewable energies." However, the presence of major rivals like Norway and Russia makes Europe "another highly competitive market in the short term and makes other markets potentially more attractive for exporting American LNG."
While Europe partially remains a market to explore, Asia is still the US’s most important LNG export destination. Although demand for natural gas in Japan and South Korea is falling due to shrinking populations and the use of other fossil fuels, demand in emerging markets like Thailand, Singapore, Malaysia and Indonesia is set to rise. China and India will continue to drive demand. The Asian market already has some major suppliers, starting with Russia, which has been eyeing the Chinese market more and more. Australia is also stepping up its LNG exports, relying on vast resources, low domestic consumption and steadily increasing output.
But it's all about prices
What makes American LNG particularly attractive are its competitive prices, as well as the possibilities offered by innovative contracts with flexible clauses and no resale destination limits. "This allows for an ever-expanding flow of American LNG to international markets that are often characterized by rigid structures with fixed trade routes." This enables enhancing energy security and diversifying supplies. "American LNG exports," Zaretskaya concludes, "offer a major contribution to the evolution of the global gas market. Historically, there have always been three major regions: North America, Europe and Asia. American LNG exports have the potential to redraw this regionalized map and globalize gas markets."