New U.S. LNG Export Facilities Experience Modest Growth
by Christina Nagy-McKenna, Enerdynamics Facilitator
After modest growth in 2019, U.S. LNG facilities will grow in size and number in 2020 despite the backdrop of steadily sinking global natural gas prices. Mild weather in the U.S., Europe, and Asia, and the impact of the coronavirus outbreak on the Chinese economy, have resulted in a global imbalance between natural gas supply and demand.
The U.S. Energy Information Administration (EIA) recently adjusted its price forecast downward for this year, now saying that Henry Hub spot prices will average only $2.21/MMBtu. The U.S. is also expected to end the winter heating season with 14% more working gas in storage than the five-year average. This glut of gas is expected to impact production of dry gas in the U.S. as well. Specifically, in the Appalachian production region low prices are dampening the drilling of natural gas wells, while in the Permian basin, low oil prices are reducing the production natural gas associated with the drilling of oil. Despite the possibility of falling gas drilling in the U.S., nine new LNG trains are expected to go into service in 2020. Beyond that though, some projects are on the bubble and may never get built.
The U.S. averaged 5 Bcf/d of LNG exports in 2019 and 3 Bcf/d in 2018. The EIA forecasts that U.S. LNG exports will grow to 6.5 Bcf/d in 2020 and to 7.7 Bcf/d in 2021. To achieve this, one new liquefaction unit will be added at Freeport LNG in Texas, two units will be added at Cameron LNG in Louisiana, and six Movable Modular Liquefaction System units will be added at Elba Island, Ga., in 2020. A third unit is expected to be added in Corpus Christi, Texas, in 2021. This will bring total U.S. baseload liquefaction capacity to 10.2 Bcf/d and the peak load to 10.8 Bcf/d. In November 2019, the FERC approved four more proposed LNG export facilities, and in its news release quoted FERC Chairman Neil Chatterjee who said: “The Commission has now completed its work on applications for 11 LNG export projects in the past nine months, helping the United States expand the availability of natural gas for our global allies who need access to an efficient, affordable and environmentally friendly fuel for power generation.”
Recent events may prove it difficult for all of these projects to be built, however.
China still has a 25% tariff on U.S. LNG as part of its trade war with the U.S., and just this week Chinese National Offshore Oil Corp. (CNOOC) declared force majeure on LNG contracts with Shell and Total SA in an effort to not take delivery of scheduled shipments. Both European companies rejected the force majeure, but quarantines due to the virus have shut down large parts of the country making commerce in China increasingly challenging. Given China’s position as the second largest importer of LNG in the world, prolonged difficulties due to the coronavirus may have longer-term impacts on the natural gas market.
Meanwhile, gas prices in consuming market have continued to fall, reducing profits available from shipping spot supplies or signing new long-term contracts. Asian spot prices for LNG, reaching $12/MMBtu or higher in early 2018, fell below $5 in January and last week were reported to be as low as $2.95. That makes it hard to make a profit trading LNG when Henry Hub prices are around $2.
Given the rapidly changing nature of the situation, it is difficult to predict how things will develop in the next few months. However, it can easily be said that financial markets and investors strongly dislike uncertainty. The next six months will prove crucial to natural gas spot market prices, to resolution of the disparity between supply and demand, and to the Chinese economy as it struggles with the impacts of the coronavirus. If global markets remain over-supplied due to mild weather and the Chinese economy is slow to recover, it will be no surprise if the growth of LNG export facilities in the U.S. comes to a halt until market conditions change.
Footnotes and Bibliography
 Short Term Energy Outlook, US Energy Information Administration, February 11, 2020.
“EIA Expects US Net Natural Gas Exports to Almost Double by 2021,” US Energy Information Administration, January 23, 2020.
“The LNG Boom - Bust Cycle Continues,” Engie Resources blog, January 20, 2020, https://www.engieresources.com/the-lng-boom-bust-cycle-continues.
“US LNG Projects on the Bubble Face Possible Shakeout Year in 2020,” December 30, 2019, https://www.hellenicshippingnews.com/us-lng-projects-on-the-bubble-face-possible-shakeout-year-in-2020/
Short Term Energy Outlook, US Energy Information Administration, February 11, 2020.
Staphczynski, Stephen, Anna Shiryaevskaya, and Nareen S Malik “Global LNG Poised for Terrible Year as Supply Floods Market,” Bloomberg, January 24, 2020.
Staphczynski, Stephen, “Shell and Total Reject China’s Force Majeure on LNG Shipments,” February 7, 2020.