In the emotion-laden aftermath of the U.S. presidential elections, the focus of all energy attention seems to be exclusively on crude oil and domestic production. Specifically, on whether energy independence is at all possible and whether cutting Saudi Arabia out of the importers’ list is a wise move or exactly the opposite.
While some grieved and others rejoiced, Cheniere Energy, which launched its first export-bound LNG tanker this spring, continued to export liquefied gas. Those who follow the LNG market duly noted that exports from the Sabine Pass terminal are growing, but it took the IEA and its latest World Energy Outlook, released last week, to cause the media to stand up and take notice.
The IEA said in its forecast that U.S. LNG will enable the United States to turn from a net importer of gas into a net exporter, with all the consequences stemming from it, such as having a much greater say in price formation on international markets.
According to the IEA – and to BP – LNG will become the dominant fossil fuel in international markets by 2035 as more and more countries switch from oil to gas, which is lower on the emissions scale. Gas consumption, the IEA noted, is growing across the world except in Japan, and there is plenty of supply, so prices are very competitive.
The U.S. is benefiting from the low prices of shale gas, liquefying it and shipping it to South America and Europe—but not Asia, which was supposed to be the main market for American gas. Cheniere Energy is shipping LNG to Kuwait, the UAE, and Jordan.
One LNG expert, Susan Sakmar, wrote about this back in September, noting that although the Middle East sits on most of the world’s natural gas reserves, they are not distributed evenly among the countries there, so they can’t benefit equally from these riches.
Iraq, which flares some 700 million cubic feet of associated gas, is not talking to Kuwait, Gulf war and all. Neither Kuwait, nor the UAE like Iran very much – they are in the Saudi orbit. Their own reserves are hard to reach and expensive to develop, not least because of a long policy of subsidizing low energy prices, which makes investment in new production particularly unappealing.
Is it possible, then, for the U.S. to turn into a major supplier of natural gas to the Middle East in an ironic turn of events? It’s not impossible, that’s for sure. The amounts of LNG shipped so far to Middle Eastern destinations are not grandiose, but the shipments may indicate a turning of the tide.
Earlier this year, there was skepticism about the success of U.S. LNG on international markets. Since then, however, things have changed. South America has proven to be the main destination of Sabine Pass LNG, and a lucrative one. And the Panama Canal has been widened, allowing tankers from Sabine Pass to use it as a shortcut, effectively lowering shipping prices, which were a big problem.
What’s more, U.S. LNG export contracts are more flexible in that they don’t bind the buyer to a long-term consumption commitment. This flexibility, according to one gas analyst from the IEA, is what will define international gas markets in the future.
This month, the U.S. is set to ship a record amount of LNG abroad, according to data from Bloomberg. Whether or not it becomes the biggest gas supplier to that part of the Middle East that can’t develop its own reserves remains to be seen. Yet, if we are to believe Citigroup, gas could well be what makes America energy independent, not oil.
By Irina Slav for Oilprice.com
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