Golden Age Of Liquefied Natural Gas

Originally published on Forbes.com on April 4, 2023

LNG will be a strong driver of U.S. natural gas production over the next seven years. The U.S. may double its exports, or more, from now to 2030. One optimistic blockbuster is $100 billion in new LNG developments in the U.S.

A golden age for liquefied natural gas (LNG) in the US has been outlined recently. Here are some more charts and details about the future of LNG including other forecasts and financial elements. Also the role of the Permian and Haynesville shale to support rising demand for natural gas production, and what this means for present students of petroleum engineering.

Previous growth.

LNG exports from the US began only as recently as 2016. Peak export capacity was 4.9 bcfd (billion cubic feet per day) in 2018 but almost tripled to 13.9 bcfd in 2022. The US was becoming a powerhouse of LNG.

Figure 1. LNG export sources in US from 2016 to October 2022. Source Energy.gov.
Figure 1. LNG export sources in US from 2016 to October 2022. Source Energy.gov.

The location of these exports is given in Figure 1. Sabine Pass in Louisiana is the biggest, followed by Cameron in Louisiana and Corpus Christi in Texas.

Future growth.

Wood-Mackenzie have forecast LNG growth in the US from 2022 to 2030 (highest curve in Figure 2). One caveat is that potential projects have been included, realizing that some potential projects may never be completed.

There is a good chance that the US will double, and possibly triple, its exports from now to 2030. Note that new export terminals in the US cost up to $10 billion, and take a few years to be funded and permitted. This delay is why the uptick in US and Qatar exports accelerates in 2027, four years from birthing in 2023.

Also note that exports from Australia (lowest curve) will be constrained, partly due to limited coalbed methane resources on the east coast. One observer said LNG trains there were operating about 25% below capacity.

Wood-Mackenzie says the top curve in Figure 2 is an upper limit for the case that US LNG grows by 190 MMtpa by 2030. They also give a lower limit growth of 70 MMtpa by 2030.

The upper limit leads to a blockbuster financial prediction: that $100 billion in new developments will be needed to support the long-term growth in LNG pictured in Figure 2.

Figure 2. Growth of possible LNG exports from US, Qatar, and Australia through 2030. Scale is in million metric tons of LNG per annum. Source: Wood-Mackenzie.
Figure 2. Growth of possible LNG exports from US, Qatar, and Australia through 2030. Scale is in million metric tons of LNG per annum. Source: Wood-Mackenzie.

LNG versus rest of gas production in US.

The growth curve is impressive in Figure 2, but how large are the LNG exports compared with the rest of gas production over the US?

Forecasts of LNG exports in Figure 3 are from a different source: EIA. LNG exports as a fraction of total gas produced in the US can be calculated from this figure. The fraction, when each is measured in Tcf/yr, was 3.8/34 = 11.2% in 2021. By 2030 the ratio is 5.3/37 = 14.3%.  Or, if Figure 2 is used instead, the LNG volume would be 3.5 times higher than in 2021-2022, giving a ratio of 13.3/37 = 35.9% for 2030.

The proportion of natural gas that is converted to LNG exports by 2030 looks to be over 14%, and could be as much as 36% of the entire US gas production. It appears LNG will be a strong driver of US natural gas production over the next seven years.

Figure 3. Forecast of LNG exports from US in right panel versus total US gas production in left panel. Source: EIA.
Figure 3. Forecast of LNG exports from US in right panel versus total US gas production in left panel. Source: EIA.

Natural gas resources to supply LNG growth in US.

US natural gas production growth results from rising exports of LNG. EIA predicts that production of natural gas will increase by 25% through 2050 (Figure 3).

Short-term growth in LNG will be limited by capacity of LNG export terminals. New trains at Sabine Pass and Calcasieu Pass (Louisiana), and Golden Pass (Texas) will likely begin earlier than expected.

Longer-term growth will come from the Appalachian basin, the Mississippi-Louisiana salt basins, and from oil formations where gas is called associated gas. Pipeline constraints will limit transporting Appalachian gas to the Gulf Coast LNG export terminals.

But the Permian and Haynesville basins lie much closer to these export terminals and their high gas productivity will provide much of the LNG demands. 

In late 2018 the United States Geological Survey (USGS) completed an assessment of the entire Delaware basin, a subset of the Permian existing in both southeast New Mexico and West Texas. They came up with over 46 billion barrels of technically recoverable continuous oil resources, plus 281 Tcf of natural gas and 20 billion barrels of natural gas liquids (NGLs). NGLs are liquid compounds more complex than methane, such as ethane and pentane.

The immense quantities of oil and gas in the Delaware basin make up the largest deposit of oil and gas ever documented by the USGS in the USA. Quite simply, it’s the nation’s premier energy play with some of the largest recoverable reserves in the world.

The Haynesville shale, sitting astride the Texas-Louisiana border, is up there too. The Haynesville contains 304 Tcf of natural gas plus 1.9 billion barrels of NGLs — making it the largest continuous natural gas assessment the USGS has ever conducted.

The golden age of LNG will be reassuring to students in petroleum engineering, especially at southern states such as Texas, Louisiana, and New Mexico, who may be wondering about their job futures in oil and gas.

Headwinds for LNG exports.

On the positive side of the ledger, Wood-Mackenzie said that long-term US deals were signed for 18.5 MMtpy in 2021 but this rose dramatically to 65 MMtpy in 2022. They are anticipating a wave of final investment decisions (FIDs) in 2023.

On the negative side of the ledger, the authors say new projects will be challenged by cost increases such as supply-chain inflation and competition for resources. Inflation above 20% has been seen on the US Gulf Coast, in comparison with projects that were built in the last five years.

Also, liquefaction fees are low, $2-$2.5 /MMcfd for long-term fixed price deals, and this can hurt LNG producers and their profits.

A combination of these factors led the authors to estimate internal rates of return (IRRs) of only 5-6% for some new LNG projects.

The price-switching upside for LNG.

In 2022, many overseas companies were hurt by high prices of natural gas and LNG. Some switched to coal, but at $10/MMbtu, LNG is cheaper than coal.

Global LNG prices have been falling and are now less than $15/MMbtu, so companies are re-thinking the economics of LNG for specific uses. There will be a strong incentive to use LNG if prices fall still further.

Quote of the week from Greg Ebel, CEO of Enbridge.

“I think you find the public outside of North America are really knocking on the door to say, ‘You guys have so much energy in North America—plenty to fuel your own future. But we need it, and we need it more than ever thanks to what’s been going on in Europe. So, please, deliver it.’”

Takeaways.

LNG will be a strong driver of US natural gas production over the next seven years. The US may double its exports, or triple them, from now to 2030.

The most optimistic forecast is a blockbuster: $100 billion in new LNG developments will take place in the US by 2030.

The Permian and Haynesville basins lie much closer to the Gulf Coast export terminals, and their high gas deposits and productivity will provide much of the LNG demands.

Growth of US LNG over the next few years will be limited by increasing the capacity of LNG export terminals. But new trains at Sabine Pass and Calcasieu Pass (Louisiana), and Golden Pass (Texas) will likely open earlier than expected.

On the negative side of the ledger, new projects will be challenged by cost increases such as supply-chain inflation and competition for resources. A combination of these factors leads to estimate internal rates of return (IRRs) of only 5-6% for some new LNG projects.

Global LNG prices have been falling and are now less than $15/MMbtu, so companies are rethinking the economics for specific uses of LNG. Worldwide, there will be a strong incentive to embrace LNG if prices fall still further.

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