In 2018, the U.S. set new records in natural gas production, consumption and exports, according to the U.S. Energy Information Administration’s (EIA) just released Natural Gas Annual report. In 2018, dry natural gas production increased by an impressive 12%, reaching a record-high average of 83.8 billion cubic feet per day (Bcf/d). This was the largest percentage increase since 1951 and the largest volumetric increase in the history of the EIA series, which dates all the way back to 1930.
U.S. natural gas consumption increased by 11% in 2018, driven by increased natural gas use in the electric power sector, the EIA report added. Natural gas gross exports totaled 10 Bcf/d in 2018, 14% more than the 2017 total of 8.6 Bcf/d. And in perhaps the biggest development for the U.S. energy sector last year, several new liquefied natural gas (LNG) export facilities came online, allowing for more exports.
Moreover, due to increases in shale gas production in the Lower 48 the U.S. recently bypassed Malaysia to become the third largest LNG exporter in the world. Qatar, with a liquefaction capacity of 77 million tons per annum (mtpa), is still the top global LNG exporter. However, Australia, which recently bypassed Qatar’s liquefication capacity with a robust 80 mtpa, will also bypass Qatar’s LNG exports in terms of volume sometime next year.
If the so-called second wave of U.S. LNG development can continue to unfold, the country could also be on schedule to pass both Qatar and Australia for the top exporter slot by mid next decade. However, that trajectory is threatened as long as the trade war between the U.S. and China persists since numerous new LNG project proposals need to sign supply deals with Chinese buyers. China, which is currently the second largest LNG buyer in the world after Japan, will take the top slot within the next few years. For the U.S. to reach its global LNG goals, it’s imperative that it has China onboard.
Europe and U.S. LNG
U.S. natural gas production and corresponding LNG exports is giving Washington new geopolitical heft, especially in Europe as the Trump Administration pursues a strategy of competing for Russian gas market share. Moscow has dominated gas markets on the continent since shortly after World War II.
However, pipeline gas is usually cheaper that more cost intensive LNG, especially when the super-cooled fuel has to be transported on ships over long distances. The best chance for U.S. LNG to capture market share away from Russian pipeline gas isn’t by trying to compete head-to-head with Russian gas on a cost basis but in terms of the energy security that U.S. LNG offers.
Unlike Moscow that has cut off key gas supplies to its European customers in the dead of winter to further its own geopolitical goals, U.S. LNG doesn’t have that threat attached. This is why several European states, including in the Baltics as well as Poland are building LNG import terminals to pivot away from Russian pipeline gas.
However, keen to protect one of its main sources of state revenue, Moscow is also ramping up its own LNG exports from several new projects and will in time vie with the U.S. not only for LNG market share in Europe but also in Asia. The Asia-Pacific region accounts for around two-thirds of global LNG demand with that demand forecasted to increase further amid more usage from China, Pakistan, India and several southeast Asian countries.
Other EU states, particularly Germany, has decided that it will continue to rely on Russian gas for decades to come, a geopolitically risky move. The Russian-led Nord Stream II gas pipeline, which will deliver gas under the Baltic Sea from Russian gas fields into Germany, will finally be operational at the beginning of next year.
The pipeline, which doubles the capacity of the original Nord Stream pipeline, is so controversial that the Trump Administration threatened sanctions against companies involved in its construction. However, the project is going forward, and by doing so will partially offset European energy security offered by U.S. LNG exports for the foreseeable future.