Shale Gas Goes Global
The Winners and Losers of US LNG Exports

This week for the first time an export cargo of liquified natural gas left the U.S., sent by tanker on a voyage from a Louisiana port to a buyer in Brazil. The economics of these exports are nowhere near as favorable as they were when this idea was first conceived, but as the WSJ reports, American LNG could have a large effect on the global gas market, perhaps even greater than U.S. crude exports will have on the oil market:

[M]oving gas to a different continent is cumbersome and expensive. It requires a multibillion-dollar investment in a liquefaction facility that cools gas to 260 degrees below zero Fahrenheit. There also needs to be a specialized receiving facility on the other end. [ . . . ]

With all that, even at today’s depressed market, U.S. gas might cost at least double the domestic price once it reaches Europe. But that remains a good deal for the buyers, which is why the U.S. will soon impact the market.

There are a number of winners and losers to parse through here: If LNG demand picks up, American shale gas producers should see higher prices for their product and therefore stand to benefit from these exports. Asian markets, which for years paid a heavy premium for LNG imports (though that premium was all but erased by the beginning of 2015), will be delighted to see another reliable LNG supplier enter the market (the now nuclear-less Japan will be especially gratified). But it’s Europe that stands to gain the most from the prospect of a steady supply of American shale gas, because while these hydrocarbons won’t come cheap, they’ll also help the continent diversify away from Russian supplies that come with geopolitical strings attached.

Which brings us to the losers. U.S. households that may have grown used to staggeringly cheap heating bills may end up forking over a bit more in winter months in the coming years as our domestic glut is eased and prices edge back towards normalcy. Other LNG producers like Qatar and Australia won’t be thrilled to see shale gas entering a global market that is already quite well-supplied. It’s Moscow, however, that stands out as the biggest loser from U.S. LNG exports, because Gazprom’s most important customer base (Europe) is suddenly a lot less pliant now that it has other options.

This couldn’t come at a worse time for Russia, either, whose national budget (which relies so heavily on oil and gas sales) is already feeling acute pain from the collapse in oil prices over the past 20 months. Couple that with the weakening of its grip over Europe’s gas market and you have a spectacular one-two punch.

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