Is U.S. LNG the Bridge to a Better Future?

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Energy security in current times means reliable access to natural gas. With Cheniere Energy Incorporated (NYSE:LNG) (Houston, Texas) inking more long-term deals for liquefied natural gas (LNG), it's the U.S. that's doing much of the heavy lifting.

Cheniere Energy signed a long-term sales and purchase agreement (SPA) with PetroChina Incorporated (NYSE:PTR) (Beijing, China). Deliveries will begin in 2026 for 1.8 million tonnes per annum (mtpa) of liquefied natural gas sourced from U.S. shale basins, and they will extend through 2050.

"We are pleased to build upon our existing and successful long-term relationship with PetroChina and sign our first LNG contract that crosses over into the second half of this century," said Jack Fusco, Cheniere's president and chief executive officer.

The SPA follows the final investment decision for the third stage of Cheniere's liquefaction facility in Corpus Christi, Texas, which will boast a capacity of at least 10 mtpa. All told, Cheniere has a total production capacity of about 45 mtpa of LNG in operation. Industrial Info is tracking 10 active Cheniere Energy projects, totaling more than $11.2 billion in investment value. Subscribers to Industrial Info's Global Market Intelligence (GMI) Oil & Gas Production Project Database can click here for a list of detailed project reports.

That, along with the other LNG facilities peppering U.S. shorelines, should help address the looming supply-side crisis for natural gas. At least since the start of the war in Ukraine in late February, the European market has struggled mightily to find new supplies to replace Russian natural gas.

On Monday, the International Energy Agency warned that Europe could be on the cusp of a major emergency during the winter because of the supply-side pressures related to Russia.

While Cheniere's SPA with China does little to resolve European issues directly, it does keep flows going strong in a global market that's under extreme pressure from the sanctions placed on Russia.

China's appetite, however, may be waning. The second-largest economy behind the U.S. posted an increase in gross domestic product (GDP) of only 0.4% year-on-year in the second quarter. That's the slowest since the pandemic began and is the result of a zero-tolerance policy for COVID-19 infections. Lockdowns in China are diminishing demand.

Nevertheless, there is a void to fill. Russian flows are hindered by sanctions and now maintenance on its Nord Stream natural gas pipeline network.

The U.S. faces its own challenges, however. Unplanned maintenance means the Freeport LNG's (Houston, Texas) Freeport facility in Texas is offline at least until early October. And it's hurricane season in the Atlantic, which poses a threat to everything from shipping lanes to refineries and well pads.

But still, the U.S. is emerging as an LNG powerhouse alongside the likes of Australia and Qatar. Exports over the first half of the year are up about 18% when compared to the same period last year. And that's even considering the outage at Freeport.

Click on the image at right for a U.S. Energy Information Administration (EIA) graph showing the growth of U.S. LNG exports through 2020.

Meanwhile, total natural gas production is on pace to beat last year's output by 3% and volumes increase by another 4% in 2023.

For China, and perhaps the broader energy sector, U.S. natural gas is a bridge fuel as well as a geopolitical hedge.

"Natural gas continues to play a vital role in enabling energy transition in China," said Tian Jinghui, the president of PetroChina subsidiary PetroChina International. "We are pleased to further expand our cooperation with Cheniere in delivering LNG, one of the cleanest fuel choices to our millions of customers for many years to come."

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