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Vanand Meliksetian

Vanand Meliksetian

Vanand Meliksetian has extended experience working in the energy sector. His involvement with the fossil fuel industry as well as renewables makes him an allrounder…

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Can U.S. LNG Compete In An Increasingly Crowded Market?

The global LNG market has witnessed a remarkable period of growth and expansion where the proliferation of liquefaction technology and the rise of renewables has had a positive effect on the sector. The Covid-19 pandemic, however, shook the global economy, disrupted economic activities, and hit the LNG industry hard. With vaccination programs advancing in most industrialized countries, economies are carefully reopening and demand for commodities such as natural gas is on the rise again. Ever since fracking technology was applied on a massive scale in the U.S., oil and natural gas production has soared, driving an increase in LNG exports. The produced volumes following the shale boom were so large that the U.S. economy, once a significant importer, started exporting oil and natural gas. Before the Covid-19 pandemic, multiple LNG FIDs were planned for another round of expansion. As demand is rising again, several projects are advancing to secure funding. However, uncertainty remains as the U.S. LNG industry still faces many hurdles.

Nat Gas

During the past 12 months, the global LNG market has seen massive price swings. The spread of the novel Coronavirus and the ensuing economic crisis hit demand for LNG and lowered prices significantly. The sector's luck changed again during the 2020-2021 heating season when a combination of factors, especially unusually cold weather, raised prices to extreme heights. The East Asian JKM benchmark briefly hit $32.50/MMBtu in January. 

While exporters welcome the news, importers buckled under the financial strain. The record prices in January were especially favorable to U.S. exporters whose natural gas is sold under Henry Hub-indexed prices which remained below $3/MMBtu. Competitors mostly rely on oil-indexed pricing which is currently approaching $70/barrel and has been on the rise for a while. Therefore, U.S. exporters have an advantage over their adversaries.

Although the list of project proposals awaiting FID has shortened during the past 12 months, the situation is changing and becoming favorable for the remaining proposals. According to Rystad, three to four U.S. LNG projects of the following list could receive FID: Plaquemines LNG Phase 1, Port Arthur LNG train 1, Freeport LNG train 4 Driftwood LNG Phase 1, and Rio Grande Phase 1. ICIS, however, is more skeptical regarding its outlook which reports that there has been limited progress in commercial discussions that several would-be exporters are having with customers.

Related: U.S. Oil Rig Count Soars As WTI Recovers

Despite the somewhat bullish expectation of the U.S. LNG sector, several large-scale projects have already been discontinued over the past months citing sustained uncertainty in global markets. In January, for example, NextDecade scrapped its plans for the Galveston Bay LNG project in Texas. Also, Annova LNG canceled plans for the Port Brownsville facility in Texas with a proposed capacity of 6.5 mtpa. 

Besides economics and uncertainty concerning global demand, geopolitics is also a headache for the LNG sector. Growth in the coming years will mostly come from Asia, with China being the main driver. According to Wood MacKenzie, Asia will account for 95 percent of the growth due to resilient demand, weak domestic production, and supportive policies. The political tension between Washington and Beijing could impede commercial deals as the Chinese could be wary of becoming dependent.

There are also competitors that threaten the U.S. LNG industry. For example, Novatek’s second massive LNG project in Siberia, Arctic-2 LNG, has already struck a deal with its partners. The plant is supposed to produce a massive 19.8 mtpa starting in 2023 which the partners Total, CNOOC, and Mitsui have signed a 20-years contract for.

Also, Qatar’s recent announcement to lift the self-imposed moratorium on the world’s largest gas field, North Dome, could be bad news for U.S. exporters seeking FID. Qatar Petroleum’s plans include a production expansion of 40 percent by 2026 to 110 mtpa from 77 mtpa. This move by Qatar has added to the risk factor for any parties considering a long-term investment in U.S. LNG.

Therefore, expansion remains uncertain for the short term. The pie is simply not large enough yet to justify another round of explosive growth. However, expect American companies to respond rapidly if global demand growth is rosier than expected, fueled by cheap feed-in gas from fracking.

By Vanand Meliksetian for Oilprice.com

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on May 15 2021 said:
    While the global LNG market is indeed crowded, it is big enough to enable the world’s major LNG players, namely, Qatar, Australia, the United States and Russia to share it along with a few smaller players.

    The global demand for LNG is projected to almost double to 700 million cubic metres by 2030 from 376 in 2020. Each of the major players has plans to expand its production capacity in order to get a bigger share of the market.

    Despite the somewhat bullish expectation of the US LNG sector, several large-scale projects have already been discontinued over the past months citing continued uncertainty in global markets.

    Still, three to four US LNG projects could soon receive FID: Plaquemines LNG Phase 1, Port Arthur LNG train 1, Freeport LNG train 4 Driftwood LNG Phase 1, and Rio Grande Phase 1.

    Qatar, the world’s largest LNG producer, exporter and also the cheapest is boosting its annual production capacity from 77 million tons to 110 million tons with production starting from the new production phase by the fourth quarter of 2025 and reaching full capacity by late 2026 or early 2027.

    Russia’s number two gas producer Novatek plans to build out its LNG export capacity up to 70 mtpa by 2030. This, in turn, dovetails into Russia’s plans for LNG production of 80-140 mtpa by 2035, which would be greater than that of the world’s two largest producers Qatar and Australia.

    Furthermore, Novatel partners in the Arctic LNG-2 project have now also concluded 20-year deals to take LNG from the plant. The sales agreements will cover total LNG production from the facility as from when that begins in earnest in an expected 2023.

    While US LNG will definitely get a share of the global LNG market by virtue of the size of the market, it will face tough competition from Qatar and Russia both of which can easily beat US LNG on price.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Kay Uwe Boehm on May 16 2021 said:
    Simply increase LNG demand in world offering LNG as 700+ bar CNG for cars, trucks, buses, trains and airplanes that way flying less expensive and securer kerosene, gasolime, LPG and LNG staying first cold down. 700+ bar CNG is about double dense same tank size with gasoline around cylinder. Local distribution in 2.4m 1000+ bar pebble tank 5 connected an 40' ISO container.
    That way quickly worldwide at fuel stations or at home for heat&electricity.

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