U.S. liquefied natural gas (LNG) exports have arrived, and recent North American market events show how the growing push-and-pull between domestic and global gas markets is here to stay, according to RBN Energy LLC analyst Sheetal Nasta.
With the start-up of five liquefaction trains — four at Cheniere Energy Inc.’s Sabine Pass and one at Dominion Energy Inc.’s Cove Point — the United States has gone from zero to an average 3.0 Bcf/d of LNG exports in just three years, a development that has already “reconfigured pipeline flows all the way from the Northeast and Midwest to the Gulf Coast, as Appalachian and other gas suppliers look for ways to get their gas south,” Nasta said.
As U.S. export capacity grows, and as the global market shifts more to “flexible and spot-oriented trade,” their will be “significant implications across the supply chain,” from producers all the way to destination markets, she said, pointing to the recent explosion on Columbia Gas Pipeline’s Leach XPress and an outage at Sabine Pass Train 3 as two examples of how domestic disruptions can have a ripple effect on global gas fundamentals.
Echoing forecasts offered up by IHS Markit, NextEra Energy Resources and the International Energy Agency, among others, Nasta calculated that based on current projects U.S. LNG export capacity by 2020 could reach 10 Bcf/d, or 76 million tonnes per year (mmty), growing to 11 Bcf/d (about 85 mmty) by 2023. This would put the U.S. share of global gas exports at around 20% over the course of about three years, she said.
“While some of this will be baseload volumes — moving regardless of price — some of it also will be variable, with the U.S. being the swing, or marginal, supplier,” Nasta said. “As that happens, global LNG movements will be increasingly susceptible to the inner workings and shifting dynamics of the U.S. gas market.
“…With just five of the 16-plus liquefaction trains currently online, more Northeast takeaway pipeline expansions on the way, and constraints developing on some existing pipelines, the market is headed for transformation and turmoil as it adapts to the new realities that come with rising export demand.”
Using the Leach XPress outage as a “prime example” of the far-reaching impacts of local disruptions, Nasta observed that the explosion hampered Southeast/Gulf Coast-bound flows out of the Appalachian Basin on Columbia Gulf Transmission (CGT).
CGT flows through northern Louisiana were averaging about 1.5 Bcf/d prior to the explosion but dropped to 0.5 Bcf/d on June 7 after the event. Looking at other pipelines flowing along the same corridor, volumes dropped from 3.5 Bcf/d to 2.5 Bcf/d after the Leach XPress outage, she said.
Northeast spot prices took a hit as gas had to be re-routed. “That price weakness bled over to the Marcellus/Utica’s destination markets in the Upper Midwest and Lower Midcontinent,” Nasta said. “On the other end of the outage in northern Louisiana, prices strengthened somewhat…As a result of these dynamics, the Louisiana gas market shifted to sourcing more supply from Texas, given that the Midcontinent price weakness provided wider price spreads” and better transport margins to bring gas into Louisiana.
Around the same time, the Sabine Pass liquefaction facility was experiencing reduced feedgas volumes due to maintenance that had begun in mid-May. Citing data from RBN’s new LNG Voyager Report, Nasta said feedgas deliveries to Sabine went from around 2.8 Bcf/d for the first half of May down to 2.1 Bcf/d for the second half, “reportedly due to an outage on Sabine’s Train 3 that extended through the first half of June.
“…Besides lowering exports, this event was also significant in that it reshuffled gas flows in the region,” Nasta said.
Creole Trail, Natural Gas Pipeline Co. of America (NGPL) and Transcontinental Gas Pipe Line (Transco) are the three main pipelines that supply the Sabine Pass facility, she said.
“As feedgas volumes fell, the declines were concentrated along two of these routes in particular — Transco and NGPL — and in the case of NGPL, especially on its westbound flows via Henry Hub,” Nasta said. “These routes happen to also be the two most expensive routes to the terminal, based on the related price spreads and transportation costs.”
These events illustrate how the U.S. gas market’s extensive network of pipelines creates liquidity and optionality, traits that will now start to translate to the world stage, according to Nasta.
“This ability to pivot a position based on daily market shifts has been a fixture of the U.S. gas market for decades. Now, that same dynamic is coming to the global LNG markets,” Nasta said. “Volumes bound for export terminals will compete for the same pipeline capacity and be subject to the same market rules, nomination schedules and transportation economics as any other volumes moving around the country.
“And when supply routes to the terminals are disrupted or gas is pulled in a different direction based on economics, terminal operators or liquefaction capacity holders…will need to adapt their strategies as well, at least for those non-baseload, or swing, volumes,” she said. “That’s likely to bring all sorts of new risks and opportunities, both for U.S. suppliers and shippers, and for far-away off-takers of U.S. LNG.”
Nasta’s comments come as the World Gas Conference convenes this week in Washington, DC, where the role of U.S. LNG in global gas markets is a topic of conversation.
(NGI is a World Gas Conference Sponsor and will be hosting a booth featuring its newsletters, data and maps. Be sure to check out our latest service, Mexico Gas Price Index, as well as an on-site TV screen streaming live World Cup soccer action. Enter to win an autographed and framed Lionel Messi jersey. You can find NGI at Booth 1208, near Excelerate Energy and Venture Global LNG.)
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