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Fuelling change: the surge of US LNG
22/5/2024
8 min read
Feature
As the start of the 21st century witnessed growing dialogues around climate change and recognition of the need for renewable energy sources, a contrary trend has emerged from the heart of the US: an upsurge in liquefied natural gas (LNG) production. This phenomenon not only marks a significant pivot in the US energy narrative, but also casts a long shadow on the global dialogue concerning environmental sustainability and the transition towards greener energy paradigms, reports Sara Siddeeq.
The rise of LNG production in the US can be traced back to the early-2000s, a period characterised by technological leaps in fracking and horizontal drilling. These advancements revolutionised the natural gas sector by making it economically feasible to access vast reserves of shale gas that were previously considered unattainable. This propelled the US from the brink of energy dependence into a colossus of LNG exports. By 2023, the US had clinched the title of the world’s top LNG exporter, overtaking Australia and Qatar, dispatching a record 91.2mn tonnes of LNG to global markets.
This record production was fuelled by two primary forces. Firstly, the resurgence of Freeport LNG of Texas to its full operational capacity following a fire in 2022, which contributed an additional 6mn tonnes. Secondly, the complete annual production from Venture Global LNG’s Calcasieu Pass facility in Louisiana, which increased the output by a further 3mn tonnes compared to 2022.
North American natural gas production, in bn m3
Source: BP Statistical Review of World Energy, 2009–2019 and The Energy Institute Statistical Review of World Energy, 2023
How did this happen?
The rapid surge in US gas exports initially caught many policymakers off guard. Until 1995, the US imported minimal quantities of LNG. However, by the early 2000s, companies were spending billions of dollars to build terminals to import gas from Qatar and Australia. Imports grew annually, peaking at 771bn ft3 in 2007, at which point it was equivalent to about 17% of the nation’s total natural gas imports.
But fracking changed all that. US drillers were able to perfect methods to extract vast reserves of cheap natural gas from shale rock. Therefore, since 2007, there has been a general decline in LNG imports due to increased domestic natural gas production and an expanded pipeline network. At the same time, natural gas prices began spiking elsewhere in the world, especially after Japan shut down its nuclear plants in the wake of the Fukushima reactor meltdown in 2011 and began demanding more fossil fuel.
This prompted a remarkable turnaround. Spearheaded by Cheniere Energy, American firms invested heavily in repurposing their import terminals for exports, which resulted in a significant increase in the shipment of US gas abroad. Since 2016, US energy companies have built seven large facilities in Texas, Louisiana, Maryland and Georgia that can export around 11.4bn ft3/d of LNG, according to the Energy Information Administration (EIA).
US natural gas inter-regional trade: exports, in bn m3
Source: BP Statistical Review of World Energy, 2009–2019 and The Energy Institute Statistical Review of World Energy, 2023
In 2022, US LNG exports averaged 10.59bn ft3/d to 34 countries, making up 56% of the country’s total natural gas exports, with a significant portion directed to Europe, especially in response to reduced pipeline gas imports from Russia. Nearly all US LNG exports were shipped via LNG carriers, with a small fraction transported in ISO containers by truck to Canada and Mexico, primarily Mexico. Despite the capability, the US did not re-export any LNG in 2022.
US LNG exports totalled 104.3bn m3. The leading recipients of US LNG exports that year were France (15.5bn m3), the UK (12.4bn m3), Spain (11.6bn m3) and South Korea (7.8bn m3), according to the Energy Institute’s Statistical Review of World Energy.
By December 2023, Europe reportedly remained the main destination with 5.43mn tonnes (just over 61%) but the month prior, in November, 68% of US LNG exports were to Europe. Analysts at Rystad Energy attributed the month-over-month decline to unusually warm temperatures in Europe and high storage capacities. At the onset of December, European gas storage levels were reported to be approximately 97% full. In that month, Asia was the second largest export market for US LNG, taking 2.29mn tonnes, or 26.6%, of exports, up from 18.5% in November.
As Europe is expected to reduce its reliance on gas in the future by expanding its portfolio of renewable energy sources like wind and solar power, it is expected that the primary regions projected to drive the demand for natural gas will be China, India, Pakistan, Bangladesh and Vietnam.
Biden’s pause
Earlier this year, US President Joe Biden announced a temporary halt on the approval process for 17 planned LNG export facilities to evaluate their effects on climate change, economic factors and national security. ‘During this period, we will take a hard look at the effects of LNG exports on energy costs, America’s energy security and our environment,’ he said. ‘This pause on new LNG approvals sees the climate crisis for what it is: the existential threat of our time.’
The pause could affect nearly a dozen proposed projects in the US and Mexico that, if built, could boost export capacity by another 10bn ft3/d. Climate activists have celebrated the White House decision as a massive win, while industry groups have warned that it could endanger future LNG projects and undermine the role of the US as an LNG exporter. Biden has been criticised for implementing the pause as a way to regain the support of young, climate-conscious voters who supported him in 2020, as he plans his November 2024 election campaign, after disappointing them last year with his decision to greenlight the ConocoPhillips’ Willow oil project in Alaska.
However, despite the presidential action, the US gas boom shows no signs of waning in the near future. Five projects along the Gulf Coast, already permitted and under construction, won’t be affected and will be able to export an additional 9.7bn ft3/d by 2027. If anything, exports are due to double in the next couple of years from projects already approved.
‘During this period, we will take a hard look at the effects of LNG exports on energy costs, America’s energy security and our environment. This pause on new LNG approvals sees the climate crisis for what it is: the existential threat of our time.’ – US President Joe Biden
Geopolitical implications
There is concern, though, that the pause will have long-term implications. The need for the US to support Europe in diversifying its energy sources away from Russian gas due to the war in Ukraine highlights a significant national security concern. It underscores the geopolitical importance of US LNG exports, particularly in the context of supporting allies like Germany, which relies on US LNG to compensate for the reduction in Russian gas supplies.
The pause in US LNG export approvals could also exacerbate energy security risks in Europe, especially with the Continent experiencing unseasonably warm weather that has so far mitigated the impact of reduced Russian gas exports. A return to normal winter conditions could lead to an energy crisis, increasing demand for LNG and elevating geopolitical risks, as European countries might need to redirect resources from supporting Ukraine to address energy needs. The situation also has implications in Asia, where countries like Japan and the Philippines rely on US LNG for energy security, with the pause potentially affecting future projects and exacerbating regional vulnerabilities, especially in the face of disputes like those in the South China Sea.
Moreover, the restriction on future US LNG exports raises broader geopolitical concerns, including the risk of regional conflict in the Middle East and the impact on global LNG supply chains. With the US being a leading LNG exporter, any hesitation to continue exports can push energy importers to seek alternatives, potentially extending the use of ‘dirtier’ energy sources and complicating global efforts to combat climate change. Despite the Biden Administration’s focus on climate change and reducing emissions, the suspension of new LNG export approvals poses a dilemma in balancing climate goals with the pressing need for global energy security, especially during times of geopolitical instability.
Are LNG exports good or bad?
A contentious debate has arisen about whether LNG is dirtier than coal. Many environmentalists argue that it is, challenging the conventional wisdom that gas is a sort of ‘diet’ fossil fuel that could help reduce climate pollution as the energy system shifts to renewable power. But the picture is more complicated than that, say many researchers who study the carbon content of fuels. Gas – and LNG exports in particular – most likely contributes more to planetary warming than previously thought.
However, some published official figures provide evidence for the opposite view. In 2019, the US Energy Department concluded that US LNG typically generates fewer greenhouse gas (GHG) emissions compared to various types of coal or gas used globally. In Asia, life-cycle emissions associated with US LNG were 54% to 2% less than local coal, and in Europe, that figure had an even bigger range, from 56% less than coal to 1% more. This indicated that increasing exports could be advantageous for mitigating climate change, especially if US LNG was to substitute these other fossil fuels. For example, in the absence of gas, Pakistan and Bangladesh have, at times, resorted to using more coal.
These findings have been contested by some environmentalists, who argue that the study didn’t fully consider the extensive methane emissions that often accompany natural gas production. They also questioned whether an abundance of natural gas might displace renewable energy sources instead of replacing coal.
Note:
1bn m3 = 680,200 tonnes = 35.3bn cf3
1bn cf3 = 19,260 tonnes = 28.3mn m3
1,000 tonnes = 1.47mn m3 = 51.9mn cf3
Source: https://www.epa.gov/cmop/updated-coal-mine-methane-units-converter
- Further reading: Global LNG demand is set to grow significantly beyond 2040, driven by Far East markets, according to the latest analysis from Shell.
- ‘Australia steps on the gas’. New Energy World’s Brian Davis looks at the rapid expansion of the Australian LNG industry on both the east and west coasts.
