Limited additions to pipeline infrastructure and a slower expansion of LNG terminals on the Gulf Coast are expected to stymie U.S. natural gas demand in early 2023 before helping fuel the region’s export growth over the long term.

The Gulf Coast has become the epicenter for U.S. liquefied natural gas since the Lower 48’s first major export terminal started operations in Louisiana in 2016. The Center for Liquefied Natural Gas’ (CLNG) Charlie Riedl, executive director, said the dynamics that have pushed the region into its role are expected to accelerate within the decade, especially after Russia’s February invasion of Ukraine.

“I think all you have to do is look at the proposed projects that are currently approved for authorization to get an answer to how important the Gulf Coast is for the next wave of projects,” Riedl said.

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Riedl is delivering the opening keynote on day three of LDC Gas Forums’ Gulf Coast Energy Forum.

To feed the growing demand for LNG in both European and Asian markets, Riedl said expansions of both export facilities and pipelines connecting Permian and Haynesville Basin natural gas to terminals will “be mission critical for the build out of the Gulf Coast LNG industry.”

No ‘Real Home’ for Supply

While export capacity is expected to gradually increase on the Gulf Coast through 2025, East Daley Analytics Inc.’s Rob Wilson, vice president of analytics, told NGI market dynamics aligning over the next few months should demonstrate why those expansions will be needed sooner rather than later. Wilson said natural gas producers could see the impact of slower near-term growth at LNG terminals as soon as this spring.

“I think it will be March and April, when storage ramps up, and we see levels reach significantly above historical averages,” Wilson said.

Wilson is also scheduled to take part in a panel on the state of the Gulf Coast on day one of the Gulf Coast Energy Forum in New Orlean on Oct. 12-14.

Aside from a partial restart at Freeport LNG in South Texas, which could possibly return around 2 Bcf/d of feed gas demand to the market in November, the largest addition to export demand isn’t expected for another two years. The first train of ExxonMobil and QatarEnergy’s Golden Pass LNG, currently under construction southeast of Houston, could start up in 2024, with the second and third trains expected to follow in 2025.

Venture Global LNG Inc. is still commissioning the Calcasieu Pass terminal in Louisiana, with September feed gas deliveries averaging about 1.5 Bcf/d. Its Plaquemines LNG facility, which received the first positive final investment decision since 2019, could have half of its 18 modular trains ramp up starting in 2024. The other nine trains could enter service sometime in 2025.

Headed into next year, Wilson said international demand for U.S. LNG and interest in long-term contracts is expected to persist, but U.S. natural gas producers will likely see a price slump before demand can catch up with supply.

“It’s going to be a significantly oversupplied market just based on the amount of supply in the market relative to essentially flat demand,” Wilson said of the U.S. gas market. “I don’t think the gas has a real home as far as demand, aside from storage and aside from the market telling producers to pull supply off.”

The Natural Gas Supply Association recently forecast that LNG exports were expected to rise 30% above the three-year average this winter, reaching an estimated 13.4 Bcf/d. Driven by growth in associated gas and a production boost from the Haynesville Shale, natural gas output is also expected to average 104 Bcf/d during the winter, up 4% year/year.

While the potential risk of oversupply could be growing, Wilson said the current deficit in Gulf Coast export capacity is also what will help drive foreign investment and international interest in U.S. LNG exports.

“It just takes too much time to build the capacity, but that in and of itself will drive demand,” as foriegn investors continue to see the U.S. as an abundant and “relatively cheap source of energy.”

A Signal to Europe

U.S. projects have signed deals to supply more than 35 million metric tons/year of LNG this year, mostly with offtakers in Asia and large global portfolio players.

Riedl said that number could tick up before the end of the year, as well as sanctioned projects, as firms finalize contracts, but more work is still ahead for the Gulf Coast.

Riedl said the CLNG is not only advocating for regulatory and permitting reforms for oil and gas infrastructure, but asking lawmakers to specifically look at the geopolitical importance of export facilities.Riedl said association members are still reporting heightened interest from European offtakers, mostly for projects that already have regulatory approval, but policies that prioritize permitting key LNG terminals would help build confidence for foreign investors to back future projects.

The Biden “administration promised 15 billion cubic meters (Bcm) of LNG to Europe this year and 50 Bcm by the end of the decade, but that demand will have to come from new infrastructure, as existing volumes are already largely contractually obligated to other locations,” Riedl said.