The global market for liquified natural gas (LNG) is about to be upended by a flood of U.S. shale. A decade ago we were busy building massive multi-billion dollar LNG import terminals, and now we have five export terminals with the government go-ahead. In just five years, analysts expect the U.S. to be the world’s third-largest exporter of LNG behind only Qatar and Australia. Projections suggest America will contribute more than a fifth of the world’s total supply by 2019. These new supplies won’t just be expanding the global LNG market (which some predict will grow by as much as 40 percent), they’ll also be changing it. Bloomberg reports:
Long-term contracts will be eroded amid new supply coming from Australia and the U.S., Dubai Mercantile Exchange’s CEO Christopher Fix said at the conference in Kuala Lumpur. […]
“We see the U.S. as a major contributor to the development of the LNG spot market as the volumes start to ramp up,” Jamie Buckland, head of investor relations at GasLog Ltd. in London, which owns 22 LNG tankers, wrote in an e-mail May 14. “There should be a lot more flexibility and you could see some buyers of U.S. volumes selling product on to others.” […]
Spot and short-term LNG trades are defined by the International Group of LNG Importers in Paris as deals lasting four years or less. They accounted for 16 percent of all transactions in 2006 and that share may expand to 45 percent by 2020, according to Alan Whitefield, a senior associate at Sund Energy AS, a consultant to the industry.
Our allies in Europe and especially in Asia have long chafed at the long-term LNG contracts whose prices have often been linked to the price of oil. LNG isn’t anywhere close to as widely traded a commodity as oil, and despite its name neither is it as liquid a commodity. As a result, regional markets have often developed fairly divergent pricing structures. U.S. shale gas is expected to change that.
Japan will be happy to see new LNG supplies coming on the market, as the energy-poor island nation has been forced to dramatically increase gas imports after it shuttered its nuclear reactors in the wake of the 2011 Fukushima disaster. So too will countries in Europe, some of whom have already started building out the requisite LNG import infrastructure in an attempt to loosen Gazprom’s iron grip on the continent.
Domestic prices are expected to increase significantly from their almost scandalously cheap levels today, but it’s hard to tout free trade ideals while keeping our gas to ourselves. Energy independence is, after all, a fantasy.
The rest of the world has so far failed to replicate or even produce the palest imitation of the U.S. shale boom, but thanks to LNG, it can experience the revolution—as a buyer.