RBN Energy: tectonic changes in the LNG trade.
For years now, the international LNG trade has been based primarily on long-term contracts between buyers and sellers, and those deals have been indexed to oil prices.
That long-standing regime is now tottering, however, and a New World Order that would add considerable flexibility to LNG trading—and increase the role of the LNG spot market—may be in the offing.
That would have huge implications for U.S. natural gas producers who want to export increasing amounts of liquefied gas.
Considering how important a player the U.S. has always been in worldwide energy production and consumption, the country’s experience with the liquefied natural gas (LNG) sector has been limited—at least until now.
Sure, a few LNG import facilities have been in place here for decades. (Distrigas, near Boston, has been operating since 1971, but other early facilities were mothballed in the 1980s or ‘90s before being restarted in the 2000s--just before we realized that the U.S. has far more natural gas underfoot that we had thought.)
But LNG imports peaked in 2007, when they averaged only 2.1 Bcf/d—a drop in the U.S. gas demand bucket.
Now, with lower-48 U.S. gas production averaging more than 70 Bcf/d in 2014 (up from 53 Bcf/d six years earlier) and likely to average 73 or 74 Bcf/d this year, four of those LNG import facilities are being revamped by adding LNG liquefaction facilities (for billions of dollars) so they can export U.S.-sourced gas, with the first (Cheniere Energy’s Sabine Pass) planned to start up before the end of the year.
These first four LNG export projects (most backed by long-term liquefaction tolling agreements, with LNG pricing based on Henry Hub gas) by 2018-19 will liquefy up to 6 Bcf/d of gas from domestic plays; another few export projects under development may boost gas use for export by half (to 9 Bcf/d) by 2020-21. A slew of other LNG export projects are stacked up behind them, but their fate (and the prospects for boosting LNG exports to 12 or 15 Bcf/d by the mid-2020s) may well depend on how the international LNG market—now in considerable turmoil—sorts itself out over the next two or three years.If any require the president's okay (and at the end of the day, in this "new" environment, they all do), don't hold your breath.