Conference: LNG Exports are the Future of U.S. Natural Gas Industry, But Big Hurdles Remain

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--"The future of the U.S. natural gas industry lies in liquefied natural gas (LNG) exports," John Harpole, president of Mercator Energy (Littleton, Colorado), told about 1,000 attendees last week at the 30th annual conference sponsored by the Colorado Oil & Gas Association (COGA) (Denver, Colorado). "The future does not lie in compressed natural gas (CNG) vehicles. It does not lie in coal-to-gas conversions at domestic power plants."

But regulatory lag in approving LNG facilities and pipeline projects, and the prospect of a trade war, could keep the industry from realizing its bright future, said Betsy Spomer, the former president and chief executive at Jordan Cove LNG (Coos Bay, Oregon).

The Trump administration is working to streamline pipeline and LNG permitting, but it is handicapped because it has filled so few of its leadership positions at the Department of the Interior (DOI) (Washington, D.C.), she added. But Joe Balash, the assistant secretary of Land and Minerals Management, said during the same August 22 panel: "DOI is leading the way in getting environmental impact statements (EISs) done faster. We are trying to expedite pipeline permitting. DOI manages one in five acres of land in the U.S. If you have a pipeline or LNG project, you'll probably cross land we manage. Sooner or later you'll come see us."

Paced by expectations of continued production growth in the Permian Basin and the Marcellus and Utica shales, U.S. natural gas production is predicted to continue growing over the next decade, to about 125 billion cubic feet per day (Bcf/d) in 2027 from approximately 95.2 Bcf/d in 2017, estimated Gregory Ruben, vice president of business development for Kinder Morgan Incorporated (NYSE:KMI) (Houston, Texas).

U.S. LNG exports are expected to grow to slightly more than 12 Bcf/d in 2027, up from just less than 1 Bcf/d in 2017, Ruben told the COGA conference attendees. The Power Industry will increase its demand for gas over the next nine years, growing 9.4 Bcf/d as an estimated 33,000 megawatts of coal-fired generation will be retired and replaced with gas-fired generation.

Pipeline exports to Mexico could nearly double over the next nine years to about 7 Bcf/d in 2027, from last year's 4 Bcf/d, Ruben added.

"U.S. exports of LNG to Asia are very competitive with the rest of the world," Ruben said.

Spomer added: "From an export perspective, LNG exports to Asia now are like night and day" compared to a few years ago. Asian LNG prices are up 41% to about $10.25 per million cubic feet (Mcf), she said, adding they briefly hit $12 per Mcf this summer. U.K. prices are up 50%. "We have a sustainable, low-cost feedstock that is the envy of the world," the former LNG project executive opined.

Spoomer noted U.S. LNG operators signed eight long-term LNG supply contracts with customers during the first half of 2018. By comparison, Spomer said, no such contracts were signed during the first halves of 2016 and 2017.

China's imports of LNG were up 50% in the first half of 2018 over the comparable year-earlier period, the former LNG executive said, adding: "China is well on its way to becoming the world's largest LNG importer."

But the U.S. Federal Energy Regulatory Commission (FERC) (Washington, D.C.), which has jurisdiction over LNG license applications and interstate pipeline applications, stands between the U.S.'s abundant supply of gas and overseas demand for gas delivered by LNG terminals and trans-national pipelines. Both categories of projects have been backed up because the commission lacked a quorum for much of 2017, which prevented it from taking votes on matters before it. FERC is still digging out from that backlog.

Spomer said there were 13 LNG license applications in the queue at FERC. Her former employer, Jordan Cove, is near the bottom of that list.

Click on the image at right to see a graphic of planned in-service dates of U.S. LNG export terminals.

Besides FERC, the other potential obstacle facing the gas industry--a trade war--was decried by Spomer: "Gas can't succeed if we go to war with our trading partners." She noted some East Coast project owners had been negotiating LNG contracts with Chinese officials, but those are on hold now due to the bellicose rhetoric and tit-for-tat import duties the leaders of each country have slapped on imports from the other. The total value of those duties is approximately $100 billion.

She added that an overseas client with that country's Ministry of Commerce recently told her: "The U.S. and Australia are breaking every treaty they signed." The official was referring specifically to the Trans-Pacific Partnership (TPP), a trade deal involving 12 countries, including the U.S., Canada, Mexico, Malaysia, Australia and Japan. Negotiated by the Obama administration, the deal was voided by the Trump administration.

Ruben of Kinder Morgan added that Mexican officials are starting to become concerned over U.S. gas supply and policy consistency. Mexico has been a favorite target for criticism by President Trump, and Mexico's newly elected president, who will take office December 1, is said to be reassessing that country's liberalization of its energy market. Those liberalizations have enabled developers to propose numerous energy projects linking the two countries.

Spomer said China's plan to slap a 25% tariff on LNG imported from the U.S. "doesn't take us out of the market, but it makes our LNG less attractive." She estimated the import tariff would drive the landed price of U.S. LNG in China to about $10 per Mcf, up from the current $8 per Mcf. To the Chinese, "Qatari LNG has got to be looking pretty good right now," she added.

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