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2019-03-15 10:30:00

LNG U.S. ACCELERATION

LNG U.S. ACCELERATION

POWERMAG - Exports of liquefied natural gas (LNG) from the U.S. continue to rise, as the use of natural gas for power generation increases in countries such as China, South Korea, Japan, and Mexico. Data from the U.S. Department of Energy (DOE) shows that four U.S. LNG export facilities combined to ship 483 LNG cargoes in 2018, a whopping 84% increase from the 262 export cargoes in 2017.

Energy Secretary Rick Perry, in a March 11 interview with CNBC at CERAWeek in Houston, Texas, talked about the importance of LNG as the U.S. competes globally in the energy sector. "Whether it's our technology on the renewable side, whether it's small modular reactors in the nuclear field, obviously the fossil fuels as well. But all of it plays a role," Perry told CNBC's Brian Sullivan. "America is a leader in the energy sector, all of those sectors, not just in the fossil fuel side. Obviously, that's really changed with our ability to deliver [LNG to] 34 countries, now five continents of LNG. It matters and it matters a lot."

The U.S. Energy Information Administration (EIA) in December 2018 said the U.S. will be able to double its LNG exports by the end of this year. The EIA said with at least 18 LNG production units scheduled to come online in 2019, and with more export terminals expected to enter service, export capacity is expected to jump from 3.6 billion cubic feet per day (Bcf/d) in 2018 to 8.9 Bcf/d by year-end 2019.

Perry said, "The fact is [LNG] is a fuel that will clean up the environment. As we look at India, as we look at China, these massive economies, we need probably more projects than what we've got on the books today to be able to meet that demand."

The DOE report shows 82% of U.S. LNG exports last year went to 10 countries. South Korea received 73 cargoes, followed by Mexico with 53 cargoes, and Japan with 37 shipments. China, Japan, and South Korea are the world's largest importers of LNG.

Gas Use Increases to Replace Nuclear Output

South Korea's use of LNG rose last year as the country's nuclear generation waned, a situation similar to how LNG imports increased in Japan after the country took its reactors offline in the wake of the Fukushima disaster in 2011. The state-run Korea Hydro & Nuclear Power Co. said about half of South Korea's 24 reactors were offline for planned maintenance in the first half of 2018. The agency said the country's nuclear utilization rates fell to their lowest level ever, just 63.6%, over the first nine months of 2018.

Susan Sakmar, a former California-based attorney who today is a visiting assistant professor at the University of Houston, where she looks at global natural gas markets with a focus on LNG, told POWER in a recent interview: "The bulk of demand growth for natural gas for power generation is expected to come from China and Asian markets. Demand growth in China is primarily being driven by China's clean air initiatives, which seek to reduce coal-fired power and replace it with natural gas and renewables."

China, in its "Three-Year Action Plan to Win the Blue Sky Defence War" published last year, is working to promote clean energy initiatives, including more use of natural gas and renewables and less use of coal for power generation.

"At the moment, the LNG market is well-supplied—and some would say oversupplied—with new supply continuing to come on the market from Australia and the U.S.," Sakmar said. "LNG prices are relatively low and this has brought on a wave of new buyers in recent years, including Pakistan, Bangladesh, and others. India is also a promising market and along with China, South Korea, and Pakistan, helped to lead demand growth in 2018. Many more new buyers are expected to emerge in the coming years so long as prices remain low and new infrastructure is built."

Lack of Infrastructure

Perry in his interview at CERAWeek addressed the lack of infrastructure. He told CNBC that private companies have told the federal government they are ready to finance U.S. energy infrastructure projects, if the government could fast-track the permitting process.

"States like Texas, states that have the resource there to be able to move it to the export facilities, they're going to get ahead economically and they're going to get ahead substantially economically because they have that mentality of 'We need to build the infrastructure,' " Perry said. "Big projects [are] out there. It's going to take a while. In the Appalachian region, the president is working with a group of people in those four states, in particular, Pennsylvania, Ohio, Kentucky, West Virginia, to build a[n] infrastructure there, sitting on top of the Marcellus, on top of the Utica, take that natural product, crack it, be able to add value to it, and then move it to the ports. That is happening. It's in the works."

"Frankly, what the private sector would like to do is if government will speed the process up, if you'll get out of our way, if you'll get us the permits, we'll take care of the spending side of it," Perry said.

The U.S. began exporting LNG from the Lower 48 states in February 2016, when the first cargo was shipped from the Sabine Pass terminal in Louisiana. There are three other U.S. terminals currently exporting LNG: Cove Point in Maryland, Corpus Christi in Texas, and Kenai in Alaska.

Two more LNG export facilities—Cameron in Louisiana and Freeport in Texas—are currently being commissioned, and a third export facility—Elba Island near Savannah, Georgia—also is expected to begin commercial operation this year.

Two U.S. companies, Houston-based Cheniere Energy and Richmond, Virginia-based Dominion Energy, dominate the U.S. LNG export market. Cheniere in 2018 accounted for about 85% of all export cargoes, with Dominion accounting for the rest.

"Cheniere is reportedly in discussions with [China's] Sinopec for a new offtake agreement to underpin Train 6 of Sabine Pass and many in the second wave of U.S. LNG export projects (e.g. projects targeting start-up mid-2020s) are hoping to attract Chinese offtakers," Sakmar told POWER. "The ongoing trade war between the U.S. and China has put a damper on some of the discussions, but eventually a resolution will be reached and China could play an important role in underpinning U.S. LNG expansions as well as new projects in the years to come."

Perry in his CNBC interview said energy is "very important" in trade with China. "It's part of the mix," he said. "And America now has the ability to use that in a very positive way when it comes to trade negotiations."

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