Much has been written in recent years about the US, once the world’s largest importer of energy resources, now poised to become the largest liquefied natural gas (LNG) exporter in the world. If this opportunity materialises, it could trigger several years of unprecedented growth in demand for natural gas.
Liquefied natural gas is natural gas cooled to a liquid state, then transported by tanker, re-gasified on the receiving end, and then injected into existing pipeline networks for distribution. Because it relies less on pipelines, it can be dispatched around the world and is often more amenable to international trading than natural gas.
At current price levels, many experts believe that the US gas could flood the global market. The America’s Natural Gas Alliance (ANGA) has long claimed that the US could reap economic, environmental and geopolitical benefits if it builds terminals to give abundant domestic supplies of the fuel full access to world markets.
The US natural gas market
Overall, the annual US natural gas production rose by about 4.7 trillion cubic feet (tcf) (or 21 percent) since 2010, according to the US Energy Information Administration (EIA). The storage levels grew by 61 billion cubic feet of gas (bcf) during the week ended August 21, 2015. If the storage estimate is correct, inventories as of August 21 totaled 3.1 tcf, which is 18 percent above levels from a year ago and 2.6 percent above the five-year average for the same week. Increasing efficiency in drilling and well services has been improving per well production while lowering costs.
Increasing use for natural gas
In the US, traditional outlets for natural gas usage have been for residential and commercial heating purposes. However, natural gas has been fast expanding in electricity generation, feedstock for petrochemicals, and other sectors. According to US EIA, US coal power production share has been about 35.6 percent in 2015, down from 38.7 percent in 2014. Natural gas power production is at 31.2 percent for 2015, up from 27.4 percent in 2014. Renewables (biomass, geothermal, solar and wind) represent 7 percent in 2015, but growing. Half of the new generation capacity could be powered by renewable and the other half by natural gas.
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Analysts estimate that by 2020, all aging US coal fuel plants will be replaced. This represents about 90 gigawatts (GW) of power production. About 30 GW would be impacted by the US Environmental Protection Agency (EPA) limits on mercury, nitrous and sulfurous oxides emissions. Considering that each 10 GW that moves to natural gas would require 1 billion cubic feet per day (bcf/d) more in supply, this would mean 9 bcf/d. Even if only half of that fuel sourcing goes to natural gas, this would call for a much higher surplus inventory, just for power generation.
The transition to natural gas and away from oil as feedestock for petrochemicals is another consideration. The discovery of abundant ethane containing shale gas has added new supplies of ethylene. This will have a major impact both upstream and downstream. There are seven major ethane cracking projects under consideration at the moment. The three facilities which are likely to be approved are Beaver County in Western Pennsylvania and two others on the Gulf Coast.
Finally, the adoption of use compressed natural gas and liquefied natural gas to power high end trucks, already completed in Canada, is progressing in the US. Increasing the use of natural gas to fuel passenger vehicles would require the creation of an extensive nationwide refueling infrastructure. This would take longer.
Growing market for LNG
According to LNGAnalysis, the leading consultants in global LNG industry, global demand for LNG would reach 500 million tonnes a year (mt/y) by 2025. This would represent around 20 trillion cubic feet a year (tcf/y) by 2020 and about 23.8 tcf/y by 2025. New capacity is either under construction or in planned stage. It is estimated that supply in the LNG market will increase by 40 percent between 2015 and 2020, the largest volume increase in supply seen by the market in any 5-year period.
US Department of Energy (DOE) regulators have approved construction of two plants for exporting natural gas, potentially to lucrative markets in Europe, Japan, Taiwan and other parts of Asia. LNG exports will be in Louisiana and Florida. Companies that have export permission include Cheniere Energy Inc, with permission for 5.68 bcf/d (2.1 tcf/y, 4.4 mt/y), and Freeport-McMoRan Inc, with 6.02 bcf/d (2.2 tcf/y; 4.6 mt/y). Russian gas giant Gazprom is estimating that the US could control 8 percent of the global export market by 2020. Analysts estimate that the flow of rising surplus shale/tight production will be moving internationally without having an appreciable impact on domestic pricing and zero effect on domestic availability.
Gas is priced at around $2.75 per 1,000 cubic feet at the New York Stock Exchange pricing hub of Henry Hub in Louisiana, USA. This is the equivalent of $6.74 at the UK National Balancing Point, and more than $7.50 for Platts JKM (Japan Korea Marker, the main Asian benchmark). Japan produces hardly any natural gas and is the world’s largest importer of LNG. Since the closing of nuclear power plants following Fukishima, Japan needs even more LNG for power production.
Dr Mosongo Moukwa is director of technology at PolyOne, USA, and was recently an independent consultant based in Chapel Hill, USA, and vice president - technology at Asian Paints Ltd, Mumbai, India. He is a member of the American Chemical Society and Product Development Management Association.