RBN Energy: US natural gas flows and prices are now inextricably tied to LNG export markets.
Three years ago, U.S. Lower-48 LNG exports were zero. Today that number is above 3.0 Bcf/d. Three years from now, U.S. exports will make up about 20% of the global LNG trade. Perhaps even more momentous, LNG exports will equal 10% of U.S. gas demand. That’s more than deliveries to the entire residential and commercial market sectors during the six summer/shoulder months each year.
All of which means that U.S. LNG exports are quickly becoming a much more important factor in both domestic and international markets. The U.S. gas market is no longer an island. In fact, the long-awaited integration of the U.S. into global gas markets is upon us, with significant implications for infrastructure utilization, trade flows and of course, price. To make sense of these new market realities, it is necessary to assess the gas value chain from U.S. wellhead to global destination — in effect, to follow the molecule from the point of production, through pipeline transportation to liquefaction and export, and from the dock to destination markets. That’s exactly what we will do in the blog series we are kicking off today.
U.S. gas exports are up from about 4% of demand in 2015 (virtually all to Mexico by pipe) to more than 10% today (60% to Mexico by pipe, 40% as LNG).
By 2023, gas exports will increase to about 18% of U.S. demand, with two-thirds of the total moving via ship into the global LNG market (and only one-third to Mexico via pipe).
If Cheniere’s Sabine Pass flows are any indication, most of the time the LNG volumes will move as base load, meaning that they will flow regardless of the price spread between U.S. and international destination markets.
But not always. When trading opportunities present themselves, lifting schedules can change. When liquefaction hardware malfunctions, U.S. shipments can be curtailed without the necessity of shutting in producing wells — just put the gas into ample U.S. storage. Likewise, when international prices collapse, U.S. supplies can be held off the market. These dynamics will be a new reality for long-time LNG market players. And one more thing. Note that in Figure 1 we have placed the global LNG supply and U.S. gas demand graphs adjacent to each other to emphasize a key point. As the graphs show, U.S. LNG exports (blue bar segments in both graphs) are a bigger deal for the global market than they are for the U.S. market. As U.S. exports grow, the implications of that relationship will become increasingly apparent.