The LNG market is growing and its future looks bright. Some industry analysts predict demand for LNG globally will increase 40% in the five year period from 2010 to 2015. This would make the annual market for LNG roughly 300 million tons. The U.S. has the fifth highest amount of natural gas reserves in the world with the EIA putting the number at 273 trillion cubic feet. By comparison Australia has the 12th highest natural gas reserves with only 110 trillion cubic feet.
But as stated above Australia was able to ship more than 12 times as much LNG overseas in 2010 than the U.S. The largest obstacle the U.S. faces in the LNG market is its lack of export/liquefaction terminals. With the Kenai facility going idle the Sabine Pass terminal is the only facility in America even close to being able to regularly send LNG overseas. And even that could still be a few years away. Now what about building LNG liquefaction plants?
Unit Economics says it can cost $3 billion for each million tons of annual capacity for the entire liquefaction supply chain which includes production pipelines the port and the facility itself. The Wall Street Journal reports there are seven additional projects seeking approval from the Department of Energy to ship LNG to most foreign nations. If all of these projects gain approval they could handle about 25 percent of U.S. gas production.
However the news source reports that approval for all of the facilities is unlikely. An additional hurdle to the LNG market in the U.S. is political opposition to sending the energy source overseas. The American Chemistry Council has warned the U.S. government that it should not undermine the availability of domestic natural gas but is not necessarily against exporting the substance. The Sierra Club is concerned that exporting more natural gas will cause companies to increase their fracking operations.
While there has been little to no evidence that fracking itself harms the environment a groundswell of opposition to the practice has emerged making investing in greater production difficult for the industry. Still for all the hurdles in exporting LNG the U.S. also many opportunities. In mid March Japanese officials planned to meet with a delegation headed by Deputy Energy Secretary Daniel Poneman to reportedly request LNG exports to Japan.
This appears to be a major step as Japan had previously shied away from American LNG due to uncertainty over whether Washington would allow it to be exported. As mentioned Japan s thirst for LNG is insatiable and it will only grow stronger as the country scales back on its use of nuclear power following last year s Fukushima Daiichi nuclear disaster. (Before the disaster nuclear power accounted for about 30 percent of Japan s energy production.
That s a large hole Japan will need to fill.) Other markets that could be exploited by the U.S. are the U.K. France and Spain all three of which are among the largest importers of LNG in the world. While Australia does send some LNG to these European countries most of the U.S. competition will come from African countries like Nigeria and Algeria as well as Qatar.
Another positive sign for U.S. LNG exports is that they appear to have the support of Energy Secretary Steven Chu who has stated that sending the hydrocarbon overseas would allow America to cut into its trade deficit. Exporting natural gas means wealth comes into the United States he said reports The Wall Street Journal.
There is much work to be done in the U.S. LNG industry to help it catch Australia but the economics are powerful if it can. The gears appear to be moving in the right direction as both international markets are opening up domestic production increases and LNG liquefaction facilities gain approval and come on line.