If the US wants to expand its LNG exports, it must first correct regulatory restrictions inhibiting them, says John Snyder
As demand for LNG globally booms, a group of American lawmakers from Louisiana have reintroduced legislation seeking to remove government restrictions on US LNG exports.
Called the License Natural Gas (LNG) Now Act, the proposed legislation would speed the permitting process for US LNG exports and allow for expanded exports to meet global demand.
The bill's backers have said it would revamp a decades-old system and “remove barriers placed on US exporters so they can quickly access the market and meet the global demand of natural gas”.
With the US expected to become one of the world’s top three exporters of LNG within the next five years – driven by supplies of natural gas produced from the Marcellus Shale and Permian Basin and increasing export terminal capacity – the legislation is well-timed.
This year alone, at least three LNG export terminal projects along the US Gulf Coast are expected to make FIDs after getting the environmental green-light from the US Federal Energy Regulatory Commission (FERC). These include NextDecade’s Rio Grande LNG, Tellurian’s Driftwood LNG and Sempra Energy’s Port Arthur LNG.
ExxonMobil and Qatar Petroleum have already made the FID on Golden Pass LNG, with an expected start date in 2024. The facility will have an export capacity of 15 mta.
But pending investments in US LNG export capacity are just a part of the global LNG expansion picture that the US could tap into if regulations were eased.
As of early March, US LNG imports had grown to take on a 12.6% share of EU LNG imports in 2019, making it Europe’s third-largest LNG supplier.
Given that the LNG Now Act would remove US restrictions on exporting LNG to Europe, that growth could accelerate, particularly in light of Europe’s stated aim to diversify its natural gas supply. (Russia supplies about 40% of the natural gas demands of Europe.) On 2 May, the EU and US Energy Council will hold a high-level forum in Brussels that could lay the groundwork for more LNG exports to Europe.
Another potential market for American LNG expansion is China, which imported 2.3M tonnes of LNG last year from the US, meeting about 4% of the country’s demand. As a whole, the spot LNG market accounted for about a third of China’s demand last year, and that percentage is expected to grow alongside the country’s appetite for LNG. China imported 18.6M tonnes of LNG on the spot market in 2018, about twice as much as 2017.
Certainly, greater diversification of its natural gas supply is part of China’s energy security strategy, and about half of China’s LNG will be supplied by the combination of Qatar, Australia and Malaysia by 2020.
With such a prize on the table, Australia, Qatar, Russia, Mozambique and Canada will all be expanding their LNG capacity from now until 2025. According to Wood MacKenzie research director for global gas and LNG supply Giles Farrer, FIDs are expected on almost 90 mta of LNG over the next two years. He points to capital expenditure for both LNG plant and upstream infrastructure of more than US$200Bn between 2019 and 2025.
To take advantage of Chinese diversification and to compete with other major producers, the US Government needs to align its regulatory structure to support US LNG exports and also ensure they are a factor in ongoing trade negotiations between China and the US regarding tariffs. Correct positioning in these negotiations will be critical for expanding US LNG exports to China.
In short, greater inroads into two of the world's biggest import-friendly markets are within reach, and the legislation sponsored by Senator Cassidy is a step in the right direction.