Evolving global markets affect US LNG exports, Senate panel told

Evolving global markets clearly are having impacts on proposed US LNG export projects, witnesses told the Senate Energy and Natural Resources Committee on July 11.

Jul 11th, 2019

Evolving global markets clearly are having impacts on proposed US LNG export projects, witnesses told the Senate Energy and Natural Resources Committee on July 11. Overseas customers are moving away from long-term contracts and toward investing in US terminals that can export US-sourced gas to Asia-Pacific customers at competitive prices, they said.

“The impact of ongoing gas production gains, and the national security and economic prosperity they have ushered in, should not be underestimated,” said Steven Winberg, assistant secretary for fossil energy at the US Department of Energy.

“We now are in our third consecutive year as a net exporter of gas, and projections from [the US Energy Information Administration] estimate that the US will be an overall net exporter of energy next year. These exports are not only reducing our trade deficit by billions of dollars each year, but are also increasing our national security,” he said.

Since LNG exports began from the Lower 48 US states in February 2016, more than 2.4 tcf of gas equivalent has been exported, Winberg said. “US exported cargos have landed in Europe, Asia, Africa, the Middle East, South America, North America, and the Caribbean—36 different countries in all. Europe has been the top destination for US LNG so far in 2019, receiving 55 cargos through April. And, led by imports into South Korea and Japan, Asia has been the top importing region of US LNG over the last 3 years,” he said.

Domestic production incentive

Because US gas supplies are so abundant, operating and planned export capacity are helping stabilize the domestic market, another witness said. “Exports provide another demand outlet and thus help to keep natural gas production steady and predictable,” said Charlie Riedl, executive director of the Center for Liquefied Natural Gas.

“In fact, growth in exports sends market signals to incentivize domestic production, which benefits consumers here at home and industries involved in the gas supply chain such as construction and manufacturing, spurring even more economic growth,” Riedl said.

“The US is entering a global market that is changing, and its entry will accelerate that change. But change is evolutionary and multilayered—thus, broad generalizations can mislead rather than illuminate,” said Nikos Tsafos, a senior fellow at the Center for Strategic and International Studies.

“There are new players, new business models, and new trade routes, but these exist alongside business practices and patterns that have persisted for decades. More than ever, it is important to understand each region and market on its own terms, with due regard to the idiosyncrasies that make it special,” Tsafos said.

Dennis V. Arriola, an executive vice-president and chief sustainability officer for Sempra Energy in San Diego, said that while most US LNG exports are from the Gulf Coast and take too long to reach Asia-Pacific customers at competitive prices, his company is developing two projects in Baja California that would solve that problem for otherwise stranded gas in western US states.

“When those two projects are completed, they will connect with pipelines from Texas to help form the “Permian-to-Pacific highway” and reduce the time it takes for US gas to reach Asian markets to approximately 12 days,” he said. “As a result, Asian LNG buyers will have increased options with the ability to access multiple gas producing regions, with different pricing mechanisms. This will help the US be even more competitive in the global LNG market.”

Alternatives are needed

Another witness, Melanie Hart, a senior fellow and director of the China Program at the Center for American Progress, said transporting US LNG there by tanker is prohibitively expensive and alternatives to long-term contracts need to be considered.

“US LNG would be a short-term fix for China when the country has its own gas resources. It already is the third-largest shale gas producer behind the US and Canada,” she said. “If China agrees to buy more US LNG or invest in projects, the US could lose leverage with one of its biggest global competitors.”

Sen. Joe Manchin (D-W.Va.), the committee’s ranking minority member, warned that Chinese investments in US LNG export projects potentially could imperil plans for an energy and petrochemical hub in his home state. “Chinese companies have said they are ready to invest $84 billion over 20 years. My gut tells me they want propane, ethane, and other building stock,” he said.

“We now are leading the world in natural gas production, and hopefully soon we will also lead in exports,” Committee Chair Lisa Murkowski (R-Alas.) said.

“Global demand for LNG, we know, is increasing. More US LNG export facilities are coming online and more of our friends and allies around the world are building import facilities. For the first time since the 1950s, we are now a net exporter of this abundant resource, and our production is driving the formation of a global spot market for natural gas,” Murkowski said.

Contact Nick Snow at nicks@endeavorb2b.com.

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