U.S. Natural Gas - Supportive LNG Demand

Jun. 09, 2022 2:47 AM ETDBE, RJN, JJE, JJETF, UNG, UNL, GAZ, UGAZF3 Comments
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Summary

  • Elevated natural gas prices and long-term European energy security concerns continue to keep a spotlight on U.S. natural gas production and liquefied natural gas exports.
  • The U.S. has grown to represent about 20% of global LNG supply and is in the process of passing Qatar and Australia as the world’s largest LNG exporter.
  • Over the next several years, global markets are expected to remain short of LNG until a second wave of expected U.S. LNG projects is operational in 2026 and after.

LNG tanker ship

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By Rick A. Veitch

Global pricing and geopolitics are keeping the spotlight on U.S. LNG export growth, which should support future U.S. natural gas demand.

Elevated natural gas prices and long-term European energy security concerns continue to keep a spotlight on U.S. natural gas production and liquefied natural gas (LNG) exports. With global natural gas markets becoming increasingly interconnected, international demand is a meaningful and growing factor in U.S. natural gas supply/demand fundamentals.

Over the past several years, the U.S. saw the completion of its first wave of newly constructed LNG export projects. As a percentage of total U.S. natural gas demand, LNG exports have increased from 4% in 2018 to 11% today. The U.S. has grown to represent about 20% of global LNG supply and is in the process of passing Qatar and Australia as the world’s largest LNG exporter.

Historically, customers in Asia have been the largest buyers of LNG cargoes, comprising about 75% of current demand. We expect long-term demand for LNG to continue to be led by Asia but expect Europe to emerge over the medium term as an incremental buyer as it searches for energy security away from Russia. Globally, U.S. LNG is highly cost-competitive; however, exports are currently running near full capacity.

Construction of natural gas liquefaction and export facilities is a multiyear, capital-intensive process. Over the next several years, global markets are expected to remain short of LNG until a second wave of expected U.S. LNG projects is operational in 2026 and after. The current backlog of LNG export projects that have already received U.S. regulatory approval is substantial. If all currently approved projects are constructed, total U.S. natural gas demand would increase by about 27% above 2022 estimates. While we do not expect all currently approved projects to move forward, global gas prices and recent geopolitical events are providing strong tailwinds for final investment decisions over the next several quarters. Since the beginning of 2022, we have witnessed an acceleration in new long-term customer supply agreements across several prospective projects.

Aided by strong international demand for U.S. LNG exports, the outlook on U.S. natural gas supply/demand fundamentals remains constructive, while we see the commodity as a bridge fuel in the energy transition. We expect natural gas producers and midstream issuers to be beneficiaries over time due to increased support for long-term natural gas prices and throughput volumes. Given the capital-intensive nature of LNG project development, we anticipate opportunity for future capital deployment in the space through future debt issuance.

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