The first U.S. export couldn’t have come at a worse time for the country’s gas suppliers. Low crude prices are weighing on the global LNG market, as contracts for the fuel are often linked to oil. A supply glut is also emerging as other countries including Australia ramp up export capacity while demand growth elsewhere slows. The worldwide surplus threatens to keep U.S. supplies swelling and domestic gas prices below $2 per million British thermal units.
Low LNG prices are a problem for U.S. producers hoping to liquify and ship their gas, because despite staggeringly low domestic natural gas spot prices (today trading well under $1.80 per mmBTU), the process of chilling that gas into liquid form and then sending it halfway around the world can add about $5 per mmBTU. In the past, foreign LNG markets were paying enough of a premium to American prices to justify the construction of these massive LNG export facilities, but that incentive has been all but erased over the past 14 months.
Still, thanks to fracking, the U.S. is sitting on a glut of natural gas, and this week it is demonstrating its ability to sell that important resource to buyers abroad. For years countries have tried to imitate the American shale revolution, but so far their efforts haven’t been rewarded. Now, thanks to LNG exports, U.S. shale gas is finally going global. According to the EIA, America should become a net natural gas exporter sometime next year. That’s the power of shale.