To Be Or Not To Be—The New Optimism For Liquefied Natural Gas

Originally published on Forbes.com on September 26, 2024

Rising LNG exports are expected from the U.S. to China, India, and other emerging economies, as well as global shipping growth and LNG bunkering.

The Paradox  

In the U.S., LNG was not allowed to be exported before the end of 2015. The LNG industry was funded by financially strong companies that were willing to invest money in a project that would cost billions of dollars and should last typically 20 years. Major corporations such as ExxonMobil and Shell were involved in the building of enormous infrastructure projects like LNG trains and LNG tankers.

A couple of years ago, Bechtel, who constructed LNG trains, identified venture capital firms that wanted to build LNG terminals. But this meant more collaboration by banks to create and monitor financing deals which slowed everything down. LNG projects at Bechtel were mired in investment commitments and a long permitting process. Regulations have eased since then but the long-term marketing situation still makes project planning less than ideal.

The report argued that it was a paradox: a potential golden age for LNG shipped to Europe, but serious uncertainty about secure funding and permitting of 20-year projects, swelled by speculation about stranded LNG assets. A timeline of 20 years is much more than 10 years, and the future is a lot foggier.

Will success continue for U.S. exports to Europe? This past August, the EU organization passed the EU Methane Regulation which has stronger restrictions to report methane emissions from leaks in wellheads, storage tanks, pipelines, liquefaction of LNG, and transport of LNG from export terminals to import terminals in Europe. Importers of LNG need to start reporting emissions by May 2025 to establish a baseline. The top U.S. exporter of LNG, Cheniere, says the oil and gas industry has to take action by 2030 to identify, measure, and fix methane leaks, as it moves toward net-zero emissions. 

This has also slowed negotiations for long-term contracts for LNG supply, while U.S. exporters try to understand the Regulation. One bothersome condition relates to methane leaks “at the level of the producer.” Producers in the past have found it hard to identify methane leaks in wellheads etc. But not anymore. A new satellite called MethaneSAT can see plumes of methane escaping from well pads, with increasing sensitivity and precision. Continuous data will become available, free, in 2025. Still, the situation at this early stage is unsettled and the new methane standards will be challenging. 

Is there any good news to counterbalance the uncertain news regarding U.S. exports of LNG? There is, but first we need to recall the angst about the Biden administration’s pause of new LNG permits.

The Pause

Snail-paced permitting regulations have improved in the past couple of years, but then in January 2024, President Biden stepped in to pause the permits for new LNG projects that had not been approved. These were mostly projects for countries that the U.S. does not have a Free Trade Agreement with.

There is a dilemma confronting the Biden administration. On one hand, LNG provides energy security for places such as Europe, and it reduces emissions by displacing coal-fired power plants in other places such as Southeast Asia. On the other hand, LNG causes carbon emissions from leakage in its production and transport and from combustion when burned for its heat energy.

Predictably, businesses invested in LNG were critical of Biden’s pause in new LNG projects. They worried about promises made to U.S. allies such as the EU, and also about added uncertainties to expanding markets in the U.S.

Did this disable the golden age for LNG? No, as projects that have been permitted won’t be affected directly. Almost 50 billion cubic feet per day (Bcfd) have already been approved for the U.S., which is 3.4 times greater than the current capacity, so this huge boost won’t be affected.

However, the Calcasieu Pass 2 LNG project has been paused which is significant because it was due to go online in 2026 as the largest LNG export plant in the U.S. Surprisingly, alone it would liquefy roughly 4% of U.S. natural gas that was produced in 2022.

New Optimism

Almost half of EU and U.K. imports were from the U.S. in 2023. But there is a new optimism in the form of LNG exports from the U.S. to China, India, and other emerging economies. Vitol is an International Commodities Trading group, which has grown in the last 60 years to trade not only oil and gas and power but also upstream, downstream, and refinery companies.  In 2023, Vitol sold Vencer Energy in the Midland Basin to Civitas Resources for a little over $2 billion. The company has earned the right to try to predict the future of LNG.

Vitol have expressed the new optimism by a couple of examples. First, in China, heavy-duty trucks that drive on diesel are being replaced by trucks that drive on LNG. The report says the market for LNG trucks rose from 10% to 30% at end if 2023. This displaced about 8% of road transport diesel.

Second, Vitol reports that shipping around the world uses 2.5 million tons per year of LNG for bunkering, which is essentially transferring LNG to refuel a cargo vessel. Vitol says they can see LNG becoming 10% of the bunkering market. An independent estimate for the LNG bunkering market is a 45% annual growth rate between 2024 and 2030. This huge growth is attributed to less pollution (sulfur oxides) and less global warming for LNG compared with marine fuels such as Heavy fuel oil (HFO), Marine diesel oil (MDO), and Marine gas oil (MGO). Tougher regulations that reduce sulfur oxides have been adopted by the International Maritime Organization (IMO) in January 2020.

An expanding shipping industry helps LNG, as does commercial advancement in emerging nations, particularly port and shipping infrastructure. This includes new LNG bunkering infrastructure like new bunkering ships as well as LNG storage facilities and port terminals. There are good prospects for the LNG bunkering industry in emerging countries.

Despite low prices today, it’s generally agreed that demand for natural gas in the U.S. will increase substantially until 2030. The demand will come from power plants as coal-fired utilities are closing down, and also from rising LNG exports.

Haynesville, in northeast Texas and northwest Louisiana, is ideally situated for LNG geography. And except for a few doubts about long-term production, it is the most logical feedstock source for the concentration of LNG terminals near the Texas-Louisiana border (see map).

West Texas is a logical second choice because the oil-rich Midland and Delaware basins want to get rid of their associated gas. In fact, two major pipelines will be online within two years: the Matterhorn Express to the Houston market (and Freeport terminal) and the Blackcomb to southeast Texas (and the Corpus Christi stage 3 terminal).

But these two pipelines terminate way before the LNG terminal concentration near the Texas-Louisiana border, which would seem to be a lost opportunity. This conundrum implies that the biggest supplier for the continuing LNG golden age will be the Haynesville shale. Expectations are an increase of 10 Bcfd of gas from the Haynesville basin through 2030.