The International Energy Agency recently predicted that the United States could become the world’s top LNG exporter within ten years. This prediction, however, is far from a certain one. The U.S. LNG boom is fraught with challenges, the latest among them, apparently, the Panama Canal.
LNG producers and the Panama Canal Authority are locked in an argument about whose fault it is that not enough LNG tankers are using the freshly expanded channel that saves 11 days from the journey to Asia, which has become a key market for U.S. LNG. According to the producers, the canal has expanded the access of cargo vessels at the expense of LNG tankers. According to the authority, LNG producers can’t comply with timetables.
The facts are as follows: the expansion of the Panama Canal has been going more slowly than initially planned. To date, only one LNG tanker a day can pass through the Panama Canal. That’s compared with a promised 12 slots for all kinds of vessels every day via the wider channel. Of this planned total, however, right now the Canal has a capacity to service just eight over 24 hours.
But there’s more: recently the head of an LNG producer, Sempra, and the chief executive of the Panama Canal Authority locked horns over the discrepancy between the LNG industry’s plans and the Canal’s capacity. Sempra’s head, Octavio Simoes, fired the first shot, saying that in the future, insufficient channel capacity could cost gas traders a substantial sum and cripple U.S. LNG sales internationally. The Authority’s head, Jorge Quijano, responded with a hint that the LNG industry has yet to prove it deserves more slot reservations than one a day.
If capacity-building were a sure indicator of the industry’s worth in the eyes of the Panama Canal Authority, then this worth would be quite high. Besides the Sabine Pass liquefaction plant—already the second-largest globally after Qatar’s Ras Laffan—there is now what the Houston Chronicle calls a second wave of LNG terminals coming on stream. Related: Kuwaiti Oil Minister: OPEC Cuts May End Earlier Than Planned
Dominion Energy’s Cove Point LNG terminal in Maryland is to soon start commercial production of the gas for Asian customers, with a capacity of 750 million cu ft daily. Over the next two years alone, we should see another four terminals be completed and start liquefying LNG for export. These include Cheniere’s second terminal, in Corpus Christi, Texas, which should start operating in 2019 with a capacity of 1.2 bcf/d; Freeport LNG, which should come on stream in 2018 with a total capacity of 2.1 bcf/d; Kinder Morgan’s Elba Island LNG (300 mcf/d; and Sempra Energy’s Cameron LNG terminal in Louisiana, with a capacity of 1.8 bcf/d.
Energy Information Administration data for January to November reveals that to date, the liquefaction capacity in the Lower 48 states stands at 2.8 billion cu ft daily, with capacity utilization at 80 percent and daily exports averaging 1.9 bcf/d. This will probably continue to grow, but for how long and by how much is difficult to forecast in light of a looming global LNG glut.
A series of large-scale LNG projects in Australia recently began commercial production, and most recently, Russia’s Yamal LNG, the country’s first, started operating. By 2019, the terminal should reach its full capacity of 16.5 million tons of LNG.
LNG is emerging as a crucial export product for every mineral resource-rich country as the fuel increasingly replaces coal and crude oil while the world’s energy needs continue to expand. U.S. LNG producers need to act quickly to overcome the challenges they are facing, if the IEA’s prediction is to come true amid growing and ever more intense competition.
By Irina Slav for Oilprice.com
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