LNG outlook is good news for US gas prices

Shell launches its first LNG outlook and that means good news for US gas prices.

Global demand for liquefied natural gas (LNG) increased by nearly 7% in 2016 to 265 million tonnes (MT). 35 countries now import LNG, up from 10 since the turn of the century. Forecast demand for LNG is set to grow between 4-5% a year between 2015 and 2030.

Demand for LNG is rising because gas plants

  • are cheaper to build and operate than other types of fuels such as coal
  • help address local air quality concerns
  • produce less carbon dioxide than coal plants

The report points out that the Chinese government has set a target for gas to make up 15% of the country’s energy mix by 2030, up from 5% in 2015.

In 2016, the 17 MT of increased demand was matched by increased supply from Australia (15 MT) and the USA (2.9 MT).

The US supply came from the LNG plant operated by Cheniere at Sabine Pass in Louisiana. The company is in the process of building 5 trains at that location and the first one became operational in the middle of the year. Each train can produce 4.5 MT of LNG a year and Cheniere has long-term contracts for 88% of the output. Train 2 was completed in late 2016, Train 3 is projected to be substantially complete by June 2017, Train 4 by August 2017 and Train 5 in 3Q 2019.

To put that into context of US gas production, each train can produce 4.5 MT of LNG a year which is equivalent to about 0.6 bcf (billion cubic feet) of gas a day. In November 2016, the US produced 89.5 bcf a day. By the end of 2017, the 4 trains at Cheniere should be requiring production of 2.5 bcf a day, a significant increase in demand.

In addition to the 5 trains at Sabine Pass, Cheniere is building 2 trains at Corpus Christi (to be completed in 2018). Other companies building LNG plants are Cameron LNG (3 trains, 2.1 bcf a day, completion during 2018) and Freeport LNG (3 trains, 2.0 bcf a day, completion late 2018 and 2019). There are also a couple of smaller projects on the East coast under construction.

By the end of 2019, assuming no construction delays (i.e hurricanes in Texas or Louisiana), that’s a demand of 9 bcf a day! Almost all of the LNG exports are contracted under long-term agreements.

Australia increased its LNG production from 31 MT in 2015 to 45 MT last year. However, due to construction delays, three large projects scheduled to export in 2017 won’t now begin exporting until 2018 or later. The producers still have to fulfill contract commitments so they may have to buy from the other producers around the world including the US.

Australia’s LNG projects face major delays, benefiting US producers

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