November 2021
The United States has been an energy-hungry nation since it was founded, but it has regularly exported energy as well. The nation’s forests, coal, oil, and gas fields have shaped the world around it as technological innovation has supplied ever-expanding ways to exploit the abundance of resources the nation finds itself blessed with.

It is a good time to be an American energy company, and good to be in business with them, with no sign that trend is going to abate in the coming years. The US is rapidly developing additional capacity for LNG exports, with a focus on the energy-hungry markets in Europe and Asia. Widespread adoption of shale gas fracking has secured the country’s natural gas supply for years to come, with 40% of US gas coming from shale.

Both Asian and European gas consumers have had a particularly rough quarter with regard to energy prices. The winter months are going to be even crueler to their wallets and energy stores, as a poor wind and solar harvest in the summer has left these regions without their metaphorical granaries of gas. US gas, while it is priced higher now than it has been since 2010, is still in great demand.

The Short

The US has announced plans to massively increase its gas liquefaction capacity by the end of the decade, moving from a distant-but-competitive third place at 44.8Mtpa in 2020 to nearly triple that by 2030. The FERC-approved capacity of LNG projects stands at over 200Mtpa. However, the impacts of Covid-19 have lingered in the minds of investors, and no new projects have managed to secure FID in 2021.

Delays continue in the confirmation of new projects from 2020, with the 27Mtpa Driftwood LNG, the 20Mtpa Plaquemines LNG and the 11Mtpa Port Arthur LNG terminals all awaiting final investment decisions (FIDs) in late 2021 or early 2022, after being pushed back from earlier in 2021. Several expansions are also due for FID in 2022, including the 10Mtpa Corpus Christi Stage 3 expansion and the Sabine Pass 5Mtpa Train 6 expansion.

Under construction and nearing completion are Calcasieu Pass, with first LNG due in 2022, and Golden Pass, due in 2024. Permits for the commissioning of Calcasieu Pass have been requested, and the site is expected to begin commercial operations early in 2022. Owner Venture Global has recently signed two major offtake agreements to sell LNG for its other upcoming site, Plaquemines LNG.

Pricing for US gas will come down towards the end of the winter season as demand eases in late February. Short inventory stocks due to the cold 2020 winter, scorching summer and poor renewable energy harvest have left most of Europe and Asia scrambling for power amid skyrocketing prices – the US Henry Hub price remains comfortably above US$5.00.

Furious ongoing European negotiations with Russia around Nord Stream 2 and gas supply will likely result in supply for Europe being secured at a premium from Russia after the massive nation has secured its own stores. This will help maintain high demand for US gas into the latter part of the calendar year and keep prices high.

The Middle

Over the next decade, LNG supply from the US is expected to grow from 35Mt in 2020 to 110Mt in 2025 and further to 124Mt by 2030. This rapid growth will account for a large share of the expansion of the LNG market as the world’s energy industry continues to transition away from more carbon-intensive fossil fuels. The US’s primary competitors are Qatar and the Middle East for LNG production specifically and Russia for the production of natural gas more broadly.

In the medium term, exports of natural gas from the US will be destined primarily for the European and East Asian markets as the energy transition picks up speed. The shift from fossil fuels to green and blue hydrogen will keep demand for natural gas steady until newer technologies are both proven and economic.

The Long

The US will continue to steadily increase its supply of LNG out to 2040. Natural gas is a natural choice for a nation with an abundant gas supply, and well-supplied neighbours create a continuing incentive to export that gas via LNG shipping. The US is expected to produce over 230Mt of LNG in 2040, with production growing steadily from 110Mt in 2025.

The sheer size of the industry’s planned growth will create an LNG surplus unless supporting demand can be found amongst the world’s developing nations. In future, the primary target markets for US market are expected to be developing nations, which will be seeking transitional fuels once they move past the use of heavy fossil fuels.

Once the developing market emerges, the US exports of LNG will shift away from the greening Europe and developed Asian markets and towards developing nations. Many of these will be nations that are currently not in a position to consider more expensive and capital-heavy LNG over energy-dense oil. They are centred in Africa and South America.

The Southeast Asian market will also be a contender for US LNG, but it is likely to be predominantly supplied by Australia, Malaysia and Qatar due to ease of access. The developing nations in each region are expected to be the primary buyers of US LNG in future, as the developed nations that make up the current market move away from a dependence on gas to greener power sources.

The Environment

With over 50Mt of capacity due for FID over the next 13 months, the US is well placed to support the global transition to natural gas on the way to net zero. As energy infrastructure in western Europe transitions away from higher-emissions fossil fuels such as oil and coal, natural gas from the US will stand ready to fill the void in base power load.

Countries are under increasing pressure to meet emissions reduction targets, and globally there is increasing drive to invest in low- or no-emissions solutions. The COP26 summit this month and more general political sentiment are expected to provide greater clarity on US targets around emissions and the country’s planned timeline.

The US is currently leading the way in the carbon capture and sequestration (CCS) space, holding roughly a third of the market and still growing extremely rapidly, with an annual growth rate potentially as high as 19%. CCS will be used to offset emissions regarded as unavoidable, whether from baseload power, transportation or agriculture.

LNG will also play an increasingly central role in helping to supply source fuel for the production of blue hydrogen. Some nations which are beginning to invest in blue hydrogen, such as the UK, do not have a sufficient supply of domestic gas to ensure the development of a new sector. While other limitations are more pressing, this provides continued security to the US export market.

The Competition

Easy access to both the European and Asian markets, a minimum of expensive transit costs and inexpensive feed gas from shale wells puts the US in an enviable economic position. The US’s primary competitors in LNG production will remain Qatar, Australia and Russia.

Australia will see relatively little growth over the next decade. It is expecting to maintain roughly 85Mtpa production but has secured strong long-term contracts positioned in the Asian markets. Qatar’s upcoming 50Mt expansion of the North Field project will see its output grow rapidly and compete to service the European Markets, as well as taking the lion’s share of any LNG investment in India.

Russia will primarily serve as a competitor via pipeline gas, though the recently established Yamal LNG and upcoming 20Mt Arctic LNG facilities will also directly compete with US LNG exporters to Europe. The  Sakhalin-II project currently serves China, South Korea and Japan due to its very close proximity to these countries, but even with next year’s expansion to 15Mtpa, it does not have sufficient capacity to supply the ravenous Asian market.

The Future

The US LNG industry will continue growing steadily as demand for natural gas increases, with the green energy transition heading into full swing. The capacity increases currently forecast will allow US gas producers to dominate a large portion of the international LNG market, but producers run a high risk of oversupply if green technology is adapted and implemented faster than predicted.

While environmentalists remain skeptical of natural gas, citing its nature as a carbon dioxide-emitting fuel, the emissions rate of natural gas is half that of oil, and less than half that of coal. Renewables, as seen this year in Europe, remain ultimately unreliable for national-level infrastructure, and neither battery technology nor the hydrogen industry have been sufficiently developed or implemented to fill the gap in energy storage that will be left by the move away from fossil fuels.

LNG stands to fill that gap until these green technologies are developed enough to stand independently, and the US will be a primary supplier of LNG. Unfortunately, the massive current projection for US LNG growth is likely to mean that the global market will enter a surplus, which will apply downward pressure to international prices.