Non-Committed US LNG Will Remain Scarce

Forecast increased demand for natural gas globally will keep new US liquefaction projects and additional proposals moving forward.

LNG carrier Fukurokuju navigates the Texas Intercoastal Waterway near Ingleside, Texas.
SOURCE: Blake Wright

The ramp-up in LNG liquefaction projects in the US will keep immediate availability of US-based LNG volumes limited over the next 2 years. The construction of new projects is often funded by the forward-selling of LNG production via international contracts, which creates a squeeze effect on short-term volumes available.

LNG has become the second-most important factor for natural gas demand in the US, accounting for 10.5% of US production in 2021, according to the US Energy Information Administration (EIA). The EIA expects US LNG exports to expand by 25% and reach 12.2 Bcf/D in 2022, up from 9.8 Bcf/d in 2021. Those volumes would make the US the largest exporter of LNG in the world, toppling Australia from the top spot.

According to a recent Moody’s report, the scarcity of LNG suggests that sustained heightened competition for natural gas volumes will keep international spot prices high over the summer months as European buyers compete with Asia to source volumes on the secondary market and rebuild depleted inventories before the next winter season.

“High international spot prices and unusually wide price arbitrage opportunities will substantially boost earnings of LNG traders and aggregators in 2022–2023, fostering new offtake agreements that support long-term LNG investment,” the report read.

The Russian war with Ukraine has many European buyers looking elsewhere for their gas supplies, which could result in significant, long-term growth for US LNG providers. However, that growth is contingent upon timely construction of new LNG capacity in addition to already announced projects and securing new contracts to support the construction of new infrastructure.

“Future LNG capacity expansions would also require accelerating natural gas production in the US, and additional pipeline takeaway capacity to connect key gas-producing Marcellus and Utica shale regions to the new LNG facilities,” continued Moody’s.

The EIA expects US natural gas production to increase by 4% to 97.4 Bcf/D in 2022, and to 100.9 Bcf/D in 2023, in step with the projected growth in LNG exports.

In March, the agency said after 2025 it projects US natural gas production will increase to meet growing LNG export demand and high global demand for natural gas will continue, making it more economical to build additional LNG export facilities in the US. EIA believes the capacity expansions, coupled with increasing demand for natural gas abroad, will result in an increased forecast of LNG exports to 5.86 Tcf by 2033, up 65% from current levels.