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Insights across the energy value chain

Even as natural gas overtakes coal as the biggest U. S. electricity source, the U. S. Gulf Coast is set to become a major export hub for the international Liquefied Natural Gas (LNG) business. A quick look at the existing Federal Energy Regulatory Commission (FERC) approved facilities indicates that 6 out of 11 (55%) of them are located on the Gulf Coast. Many of these facilities were originally built as import (re-gasification) terminals, but with the incredible rise in U. S. shale gas reserves and production, they have been re-engineered to export (liquefaction) terminals.

gulf coast lng---fig-1
Existing FERC Jurisdictional LNG Import/Export Terminals (Source http://www.ferc.gov/industries/gas/indus-act/lng.asp)

A check of the FERC “approved” facilities shows 9 of 11 (82%) located on the Gulf. More importantly, 4 out of the 9 Gulf sites are currently under construction (Sabine Pass, Hackberry, Freeport, and Corpus Christi).

Reviewing the “proposed” FERC facilities, 16 out of 24 (67%) find their home on the southern coastline.

gulf coast lng---fig-2
Sources http://www.ferc.gov/industries/gas/indus-act/lng/lng-approved.pdf and http://www.ferc.gov/industries/gas/indus-act/lng/lng-export-proposed.pdf

All told, 25 projects (some facilities will have multiple liquefaction and purification trains) are planned, representing approximately 36 Bcf/day of export capacity and exceeding $50 billion in potential capital commitments. A look at the Department of Energy’s (DOE) applications for export lists 51 applications, 42 of which are for the Gulf Coast.

Many of these projects are far from being built and many still await approvals from FERC and the DOE. That said, the abundance of shale gas in the U. S. and the ability to tie the long term gas contracts to Henry Hub pricing make these facilities some of the most competitive in the world market. Interest from Asian and European buyers is very high and can be seen in the commitments being made to these facilities by BG (British Gas, now in merger with Shell), Osaka Gas (Japan), Chubu Electric (Japan), Pertamina (Indonesia), Endesa (Spain), Iberdrola (Spain), Gas Natural Fenosa (Spain), Woodside (Australia), Petronet (India), Mitsubishi (Japan), Mitsui & Co. (Japan), GDF Suez (France), EDF (UK), and EDP (Portugal).

There are currently 34 LNG liquifaction plants internationally with 16 under construction. With the addition of the potential U.S. and Canadian facilities that number could almost double in 10 – 20 years. While much risk and uncertainty surrounds these projects they are yet another offspring of the shale revolution.

gulf coast lng---fig-3
Source: http://www.globallnginfo.com/world%20lng%20plants%20&%20terminals.pdf

Based on demand, LNG production is expected to double in the next 20 years.

gulf coast lng - fig 5
Source: https://rbnenergy.com/a-whole-new-world-europe-may-want-u-s-lng-too

Japan and South Korea accounted for 75% of 2014 demand but China, India, and other Asian economies (Thailand, Singapore, the Philippines, Vietnam) are expected to have greater growth in the years ahead. Asia will remain the primary demand center as exemplified by their 2014 imports of 180 MTPA (23 Bcf/d) which is 6 times greater than the nearest competitor, Europe.

LNG accounts for only 10% of Europe gas demand due Russia’s Gazsprom which pipes in 14.3 Bcf/d (> one-third of the market). However, Western European countries that were not part of the old Soviet bloc, imported more gas from Norway in the 1Q 2015 for only the 2nd time in recent history (think Ukraine conflict). Since European gas production, primarily from Norway and the Netherlands, is forecast to decline significantly in the next 20 years LNG demand is expected to double by 2025 and triple by 2035. That fact bodes well for U. S. exporters (with contracts tied to Henry Hub) who will be able to compete more effectively in the more liquid European spot market.

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Bob Black

is the Director Analytics and Geology for Drillinginfo. He works with internal and external stakeholders to create value added predictive analytics and insights into best practices within unconventional shale plays. He has over 30 years of experience in the Oil & Gas industry. He joined Drillinginfo in 2008 as the Director of Leasing Services where he oversaw the collection of lease data throughout the United States. Bob received his Bachelor of Business Administration in International Business and Master of Business Administration from the University of Texas at Austin.