The US gas journey, from rigs to riches | Business| Economy and finance news from a German perspective | DW | 28.11.2018
  1. Inhalt
  2. Navigation
  3. Weitere Inhalte
  4. Metanavigation
  5. Suche
  6. Choose from 30 Languages

Business

The US gas journey, from rigs to riches

The recent Ukraine-Russia flare-up adds potency to US claims its gas is a safer, cheaper bet than Gazprom's. But as the Kremlin adjusts to meet new gas demands, the US gas revolution could be far from plain sailing.

Energy experts predicted in 2005 that the US would be forced to import 25 percent of its gas within the coming decade. The country's subsequent shale gas revolution blew that notion out of the water. Today the US is in fact a net gas exporter and could be standing on the brink of a major recalibration of global energy markets. 

"What seemed impossible a few years ago is now true: The US is now competing with the Middle East in the global gas export market," Jack Belcher, Executive Vice President of HBW Resources, told DW.

But it is perhaps Moscow and Beijing that have more skin in this particular game, the former as producer, the latter as buyer. China's reluctance to buy US LNG can't be ignored as US President Donald Trump's tariffs kick in, while Moscow is cranking up its own LNG production, much of which may be sold to ... yep, you guessed it: China. 

Read moreUS sees gas exports to Germany by 2022

The US gas revolution

The US Energy Information Administration projects US gas production to grow at nearly twice the rate of domestic demand over the next decade, leaving a huge surplus for export. 

"The US is becoming one of the world's major powers in LNG and it already does and will have important consequences for the world market and politics," Anna Mikulska from Rice University in Texas told DW. 

Read more: Pipeline wars: Frontline in the fight against climate change

This global demand for liquefied natural gas, LNG — a form of gas cooled to be transported in liquid form — is growing 4-6 percent a year. LNG accounts for only 12 percent of all global gas demand but it's the fastest growing method of trading gas.

Watch video 01:33
Now live
01:33 mins.

Ukraine fears the Nord Stream Pipeline

The US currently has two liquefaction plants in operation, Sabine Pass and Cove Point, with a shared capacity of 23.3 mtpa (metric tons per annum). Total exports this year will be around 20 mtpa. The country is launching nine LNG export projects with a collective liquefaction capacity of 36.7 mtpa, boosting capacity to 63 mtpa and in a "second wave," federal regulators are set to decide on another 13 pending projects by the end of 2019.

"I expect US production to be around 40 mtpa in 2019. One more train is scheduled to start up in 2020 and one in 2022, which will take total capacity to 71.2 mtpa, which will put the USA in third place after Australia and Qatar in terms of total capacity in operation," Andy Flower, a consultant specializing in the LNG business, told DW. 

Political leverage, or old fashioned marginal cost? 

At the same time, the US is embroiling itself in trade wars, pushing some countries like Poland and Germany to consider buying more US LNG to appease Trump in bilateral trade talks. 

"New LNG providers and the US in particular are a new quality in a natural gas market ruled historically by mostly state-owned enterprises of Russia or Qatar, which meant that gas could lend itself quite easily as a geopolitical tool," Mikulska believes. 

Read more: Germany warms to plan for liquefied natural gas terminal

"US LNG has geopolitical consequences, because as it decreases the geopolitical power of historically strong natural gas players, the historical powers will have to adjust to more competitive market and won't be able to use natural gas supply to support their foreign policy as easily as they could do this before," Mikulska said.

 Gaspipeline im Med. Meer (picture-alliance/dpa/)

LNG accounts for only 12 percent of all global gas demand but it's the fastest growing method of trading gas.

US LNG transactions tend to be characterized by greater flexibility than traditional ones. Since 2008, the average LNG contract term globally has dropped from almost 20 years to less than five.

"We see many more short-term and spot transactions as opposed to traditional long-term ones typical for pipeline natural gas delivery. In 2000, 5 percent of all LNG sales were on a short-term or spot basis and that number surpassed 30 percent in 2017," Mikulska said. 

Mikulska believes the US is and will increasingly be responsible for intensification of these trends, because it will provide most of the growth in LNG production. 

The story in Russia

Russia emerged this year as a major player in the LNG market and as a beneficiary of US actions.US sanctions on Iran and its trade spat with China have pushed Beijing into increasing imports of Russian oil and LNG. Russia operates two LNG export facilities, including the recently commissioned Yamal LNG project in the Russian Arctic.

Yamal LNG has doubled Russian LNG output to just over 20 mtpa, making the country the fifth-largest LNG exporter in the world. The project concluded its first ship-to-ship cargo transfer (the transfer of cargo between seagoing ships positioned alongside each other) in Norway last week. Amid the changes in the global crude market, Russian companies presented the best alternative choice for China, Li Li, director of research at Shanghai-based research and consulting firm ICIS China, said.

"Russian oil has the best prices and best availability," Li told The Global Times.

Chinese demand

China is the world's second largest LNG importer (behind Japan) and is set be the major driver of LNG import growth over the next five to 10 years. Beijing imposed a 10 percent tariff on US LNG in September after the US slapped tariffs on $200 billion (€177 billion) of Chinese goods.

Watch video 04:21
Now live
04:21 mins.

LNG - better than diesel?

China's LNG demand grew by a record 8 mtpa in 2017 and is set to expand by another record 12 mtpa this year, making up 50 percent of all global LNG demand growth, energy consultancy Wood Mackenzie said. This comes as Beijing pushes ahead with plans to offset coal usage to curb air pollution. Beijing wants natural gas to make up at least 10 percent of its power generation energy mix by 2020. 

Read more: China's CNPC takes over Total's share in Iran gas project

As the so-called second wave of US LNG development unfolds, some of its projects will likely not reach the final investment decision (FID) needed to go forward unless they can secure Chinese funding or Chinese long-term off-take agreements. 

In the short term in 2019, China can easily ignore the US LNG market because Russia is preparing to pump more natural gas to Asia through the new Power of Siberia pipeline. In the long term, China may need to turn to Qatar or opt for more Russian natural gas. Beijing is also interested in becoming a major investor in Russian LNG projects, including Novatek's massive 19.8 mtpa Arctic LNG 2 project in northern Siberia, which comes onstream in 2023. 

DW recommends

Audios and videos on the topic

Advertisement