Last updateThu, 16 Jul 2020 3pm

LNG: State of the Market

Natural gas production in the U.S. has increased substantially over the last few years due to technological advancements in natural gas extraction methods. Certainly this increased production has resulted in reduced prices for natural gas consumers, but the benefits go far beyond the country’s borders. The ample supply and low prices are making the prospect of exporting liquefied natural gas (LNG) exciting, but the path is not as direct as some had hoped.


Globally, the demand for LNG has risen approximately 7.6% per year since 2000 and by 2019 is expected to expand by one-third. That is in large part due to the fact that natural gas is increasingly being used to produce electricity and is expected to occupy 25% of the world’s energy mix by 2035.Domestically, about one-third of all natural gas supply is used for generating electric power, although changes in temperature, nuclear plant outages and price differentials cause fluctuations in how much is needed.

John Spears of Spears & Associates, in a presentation at VMA’s Leadership Forum, pointed out that U.S. gas use is forecast to average 74.3 bcfd in 2015 (up 1.4%). Gas demand in the residential and commercial sectors is projected to fall 6.2% and 6.4%, respectively, in 2015; however, gas use in the industrial and power sectors is projected to increase 5.6% and 5.5%, respectively, this year.

A recent Bentek Energy report stated that gas-fired electric generation is at record levels so far in 2015: 6% greater than a year ago and 16% higher than the five-year average for this period. Low natural gas prices are considered the main reason for this, although environmental benefits are also important, especially for North America.

According to Spears, despite increased use for power generation and low prices, the global LNG market is currently oversupplied. Demand for LNG hasn’t grown as fast as has been expected, so the price of LNG is being pushed lower everywhere. “The price advantage U.S. producers seemed to have has now gone away. Everyone is fighting harder for a slice of a smaller pie,” he said.


LNG State of the Market 2It is in this environment that the U.S. natural gas shale boom has developed, resulting in an abundance of natural gas. It’s expected that gas output will climb to an all-time high of 78.39 billion cuf/day in 2015, an increase of 50% over 2005, led by shale reservoirs in Pennsylvania, Louisiana and Texas. This means plenty of inventory that must either be stored or, ideally, exported. With so much extra on hand, it would be logical for LNG to be exported in great quantities. But there's much competition for the global LNG market as there are also huge increases in supply coming from Australia, East Africa and Russia.

In a recent posting, the United Kingdom’s BG Group, an international LNG exploration and production company, projected that 2015 will be marked by increasing volatility as new waves of supply put more natural gas on the market. While some analysts say that new supply will be absorbed by growth in the Asian market, others—including the Conference Board of Canada—say that is not the case. A huge concern to the overall health of the LNG market will come from the glut of new supply, which will begin to increase this year and reach a peak by 2017 as the major Australian projects are completed. Some experts fear the market for LNG could soon become saturated, despite the steady increases in demand being forecast. If demand does not catch up, they say that natural gas prices, which as of March 2015 are hovering around 2.75 USD/MMBtu, will fall even further, forcing producers to cap producing wells until the market changes while vastly reducing the amount of drilling and exploration.

Domestically, on a “per btu” basis spot gas prices are currently about $0.75/mmbtu (35%) higher than spot coal prices, well below the $3.66/mmbtu price differential a year ago at this time. In Asia, the landed price for LNG has fallen from the year-ago price of ~$20/mmbtu to below $7/mmbtu at present.

Exporting LNG

In the U.S., the long, slow regulatory process has delayed efforts to export LNG. The U.S. currently re-exports approximately 53 billion cuf (1.5 bcm) of LNG overseas, but has not shipped domestic LNG abroad since 2011. That should change in 2015, when Cheniere’s Sabine Pass liquefaction facility in Louisiana comes online. That project is expected to export up to 26 bcm per year to free trade and non-free trade agreement partners. Beyond that however, the Federal Energy Regulatory Commission (FERC) and Department of Energy (DOE) have been slow to approve projects.

LNG State of the Market 3Sears is more optimistic than some about LNG exports, and expects them to start to pick up at the end of 2015. “Close to 30 LNG facilities have been submitted for approval. There are not all going to be built, though,” he said. “But no matter the price, near term U.S. projects are pretty much locked in.”

Sears did point out that The BG Group/Energy Transfer JV have delayed for at least a year a decision on the construction of the Lake Charles LNG facility due to low commodity prices. A decision had been planned for 2015. Other “second-wave” U.S. projects, such as additional trains at Freeport, Sabine Pass, and Cameron and Cheniere’s Corpus Christi LNG project, now seem unlikely to be built prior to 2020.

Australia is far ahead of North America in building and putting into service LNG export terminals. Already the final investment decision (FID) is in place for seven new Australian LNG projects, and the country is set to become the world’s largest LNG exporter by 2018. By 2020, expansion and greenfield plans could bring Australia’s export capacity to more than 7 trillion cubic feet per year.

In Canada, lower oil prices have killed off major plans for liquefied natural gas exports on the west coast. In December 2014, Petronas, Malaysia’s state-owned oil company, decided to shelve plans to build Pacific NorthWest LNG, an enormous LNG export terminal in British Columbia, which was to send LNG to Asia. But the steep start-up costs could not be justified when prices fell at the same time that other countries including Australia had LNG projects already moving ahead. BG Group has abandoned plans to build a separate LNG export terminal on Canada’s west coast and Chevron’s Kitimat project is also in limbo after its partner Apache pulled out.

LNG State of the Market 4However, plans are still in the works for Eastern Canada, where four projects that would export 1.5 trillion cuf of gas per year from North America, Europe and India. Spain’s Repsol and Australia’s Liquefied Natural Gas Ltd. have plans but they need huge investments to expand regional pipeline capacity to feed LNG terminals, and it is uncertain who will build the needed pipelines and who will pay. Also, since the eastern terminals would rely on U.S. gas deposits, pipelines would have to be built through New England, which has a history of blocking projects like these on environmental grounds.

While Australia is taking the lion’s share of LNG exports, Africa is also increasing its liquefaction capacity. That continent’s liquefaction capacity now comprises a quarter of the world total. Indian investors are already eying the huge offshore finds in Mozambique and Tanzania as they look to take advantage of the relative geographic convenience. By 2028, Africa is set to overtake the Middle East as the largest net LNG exporter.


While U.S. gas output has climbed to a record every year since 2011, gas stockpiles totaled 1.512 trillion cu/f as of March 6, 2015. That is a 47% increase from 2014, according to the Energy Information Administration (EIA). At the same time, Deutsche Bank AG predicts natural gas prices will drop about 9% to average $2.60 per million Btu by summer.

Though the market competition from Australia and Africa is steep, Spears still anticipates that U.S. gas exports will average 4.7 billion cubic feet per day (bcfd) in 2015, and increase to 5.7 bcfd in 2016. U.S. LNG exports are projected to average 0.25 bcfd in 2015 and 0.80 bcfd in 2016, as new export facilities begin coming onstream.

Construction of new LNG export facilities in North America will depend on global increases in demand for natural gas and prices that justify the huge expenditures necessary to build, especially in environmentally sensitive spots like British Columbia and Alaska.

Kate Kunkel is senior editor of VALVE Magazine. Reach her at This email address is being protected from spambots. You need JavaScript enabled to view it..

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