In January 2024, President Biden implemented a pause on new permits for proposed liquefied natural gas (LNG) trains to be built in the U.S. Biden was concerned about climate change caused by the contribution, 50%, that current oil and gas makes to global greenhouse gas (GHG) emissions.
Incoming president Trump said he wants to remove the LNG pause, because he wants to unleash more fossil energy to make the U.S. even greater than it is now -- the number 1 producer of oil and gas in the world. Trump is less concerned, even skeptical, about climate change due to LNG.
LNG is a big deal, because LNG exports from the U.S. have boomed since 2016 in what is called the golden age of LNG.
The LNG pause applies to projects that have been proposed but not yet permitted by the Department of Energy (DOE), and projects that plan to export to countries that do not belong to the free-trade agreement.
The Calcasieu Pass 2 (CP2) LNG project has been paused which is significant because it was due to go online in 2026 as the largest LNG export plant in the U.S. by producing 20 million tpy. Surprisingly, alone it would liquefy roughly 4% of U.S. natural gas that was produced in 2022.
LNG has been around for 40 years (Figure 1), but the new kid on the block is the U.S. The big three regions with most capacity now are Asia-Pacific, Middle East, and North America. Asia Pacific has been liquefying LNG on a relatively large and consistent basis since 1990. An uptick since 2015 represents coal-to-gas switching in power plants.
An upsurge in the U.S. is prominent since exports became legal in 2016 and then the war in Ukraine broke out in 2022. The exponential rise in the total data of Figure 1 screams loudly about the growing influence of LNG and that marketing opportunities are available for LNG exporters.
LNG is critical to global growth because it's a dense energy liquid, is flexible from production to marketing, is efficient, and reliable. There exist 20 exporting and 51 importing markets across the world.
LNG receiving capacity leaped ahead in the past two years, reaching just over 1,000 million tpy in early 2024. The jumps from 2022 to 2023 were: Europe, 30 million tpy, Asia, 26.9 million tpy, and Asia-Pacific 13 million tpy. Vietnam and Philippines became LNG importers in 2023. To clarify, the global LNG trade was 400 million tpy in 2023.
China, Japan, Korea, then India was the ranking order for LNG imports in 2023. The first 10 months of 2024 show Asia (presumably Asia + Asia-Pacific) steady at 24 million tonnes per month. Meanwhile Europe declined from 12 to 7 million tonnes per month.
In this same period, China's purchases jumped by 13% from the same time in the previous year. Sales of trucks that run on LNG contributed to this surge as truck numbers doubled, price of LNG was 20% less than diesel, and tighter emission standards were in place.
Asia's imports from the U.S. in 2024 rose from 1.5 million tonnes in February to 3.4 million tonnes in July, and have remained close to that level. With winter coming on, these imports are likely to remain high.
The competition between Asian and European markets will continue, since LNG supplies about half of Europe's gas.
In 2023, the U.S. became number 1 exporter of LNG (85 million tonnes). Number 2 was Australia (80 million) and Qatar (78 million). Russia was far behind with 31 million tonnes.
Where did all this LNG come from? According to the Federal Energy Regulatory Commission (FERC), the U.S. has eight working LNG export terminals. Seven others are being built or have been approved. Another twelve have been approved but construction has not started.
Rystad Energy argue that incoming president Trump will deregulate and provide faster permits and thereby boost global supply (Figure 2). This will unleash long-term demand. LNG export capacity, 11 Bcfd in 2023, could spurt to 22 Bcfd by 2030 if environmental restrictions are removed for major projects like Calcasieu Pass (CP2) that have been held back by Biden's pause. The main points from Rystad:
· This expansion for the U.S. is critical because global demand is expected to reach 79 Bcfd by 2030, as the world transitions away from coal and oil.
· Trump could use LNG as a bargaining chip in trade negotiations (think tariffs) with other countries in Europe, as well as China, and Russia.
· U.S. supply of LNG needs to be strategically managed, especially since marketing LNG contracts are long-term, like 20 years. An oversaturated market in the mid-term could erode LNG prices, and put U.S. terminals at a disadvantage compared with cheaper production in Australia and Qatar.
· Allies in Europe, if they can prioritize U.S. imports of LNG, perhaps by aligning energy policies (think emission standards for production and transport of LNG), could attain a stable energy supply that would boost relations with the U.S. (think ending war in Ukraine and NATO).
In a market constrained by supply, Oil and Gas Journal report that serious uncertainties make LNG forecasting less stable. Apart from the Biden pause, which should be rescinded soon, there are sanctions on Russian LNG that may impact 20 million tpy of capacity that has been expected. Also, Ukraine may not continue the transit deal for Russian gas at the end of 2024. There is a security risk in the Middle East, now heightened by the takeover of Syria. Last, physical risks of declines in feedstock supply of natural gas from declining gas fields, and shipyard bottlenecks.
On the other hand, one thing is certain in LNG matters: the desire by countries to disconnect from Russian gas supplies. A lot of the growth in liquefaction capacity has been driven by a goal to replace Russia's gas lost because of the war in Ukraine.