LNG

European LNG import capacity

Opportunity and risk

LNG

News and Insight

International Energy Agency Selects S&P Global Platts for LNG Pricing

New York, London, Singapore (May 20, 2021) – S&P Global Platts (“Platts”), the leading independent provider of information, analytics and benchmark prices for the commodities…

News and Insight

International Energy Agency Selects S&P Global Platts for LNG Pricing

LNG

Videos

Global LNG’s new swing dance

News and Insight

Natural gas in transition: Path for US LNG narrows as markets wary on emissions

News and Insight

Natural gas in transition: Path for US LNG narrows as markets wary on emissions

The US natural gas industry is facing new urgency to keep its exported LNG cargoes attractive to consumer nations aspiring to meet net-zero carbon targets by 2050.

As the global energy transition unfolds, US LNG will influence and be influenced by the international landscape for natural gas.

The election of President Joe Biden has focused more attention on climate, clean energy, and managing the emissions of fossil fuels in the US. In Europe, buyers have expressed a preference for LNG cargoes with low associated greenhouse gas emissions. In many other countries around the world, the decarbonization goals outlined in the Paris Agreement on climate change are now figuring more prominently.

ADDITIONAL COVERAGE: Natural Gas in Transition

Some analysts see the potential for climate policies to expand growth opportunities for gas in the global market, especially in parts of Asia that favor it as a bridge fuel. But there is also uncertainty when looking out to 2050 as analysts and industry players try to answer questions about the shape of energy policies in gas markets, the selection of energy resources, and the competitive pressures on gas.

“There is a clear clock ticking until 2050,” said Nikos Tsafos, a senior fellow with the energy security and climate change program at the Center for Strategic and International Studies. “The idea of gas as a useful short-to-medium decarbonization strategy has lost a lot of its appeal. Not everywhere, obviously. But the conversation is just so different.”

As countries adopt aggressive decarbonization goals, it is becoming harder to make decades-long investment decisions on gas projects without asking tough questions about the role of the fuel, Tsafos said.

Other countries’ attitudes toward gas are important to the US because LNG feedgas demand is poised to be the single-largest driver of growth in domestic gas consumption in the next 20 years.

S&P Global Platts Analytics estimates global gas demand will grow by some 1.2%/year in the 2020s, fueled by growth in the Asia-Pacific region and the use of gas as a bridge fuel in western power markets. The growth is forecast to slow in the 2030s, however, as net-zero carbon goals put pressure on governments to rely less on gas and LNG.

European LNG demand is likely to peak in the mid- to late 2020s, said Ross Wyeno, lead LNG analyst with Platts Analytics. A steady increase in Asian natural gas demand will be an integral sink for new supply out to 2040.

Organizations such as the International Energy Agency and BP have released outlooks over the past year that show a narrowing space for gas over the next three decades. The IEA’s roadmap for reaching net-zero emissions by 2050 shows many of the LNG facilities under construction or at the planning stage will not be needed, with the LNG trade falling 60% from 2020 under its scenario.

“In most advanced economies, the window for increased natural gas consumption is probably already closed, while developing and emerging economies, especially in Asia, have some further room to grow in the decades ahead,” said IEA analyst Akos Losz. “Gas can play a more positive role in the transition, but for that, the whole value chain would have to adapt.”

Even assuming demand growth, industry observers anticipate an increasingly competitive global gas market, with national oil companies growing in importance. Increasing the pressure on US export developers, Qatar recently announced a 33 million mt/year LNG expansion that features several technologies aimed at improving the facility’s carbon footprint, such as carbon capture and storage.

Scrubbing the US industry

The Biden administration is expected to set stricter environmental controls for US shale gas production — something that could help buttress exports in the near term. But cleaning up the supply chain will be especially challenging in the US, where thousands of independent producers supply gas for export.

Fred Hutchison of US trade group LNG Allies said he sees the US gas industry now embracing the need to address its externalities, such as leaks, emissions, and flaring, to remain relevant in a net-zero carbon future. The question is how quickly it can do so.

Cheniere Energy in a recent report analyzing different climate change policy scenarios said it expects LNG demand growth to continue for the next two decades, but added that “continued action to reduce global GHG emissions may cause LNG demand to decline beyond 2040.”

The company also underlined its belief in the long-term resilience of its business.

At the CERAWeek IHS Market energy conference in March, Cheniere CEO Jack Fusco was bullish about a “long, very robust runway” for gas throughout the world.

But Cheniere is also putting new emphasis on its efforts to drive transparency and curb emissions along its supply chain. The company recently unveiled plans to report carbon-equivalent emissions for each LNG cargo it produces, starting in 2022.

Cheniere’s announcement joined those of other sellers marketing carbon-neutral cargoes. At least 14 “carbon-neutral” cargoes have been announced, according to Platts Analytics, with all but two of those cargoes going into the Asia market. Among them was a carbon-neutral cargo that Cheniere said it delivered in early April to Royal Dutch Shell in Europe.

“There is a race to make LNG as green as possible,” Tsafos said.

But there are questions about how the efforts to assign GHG emissions to LNG cargoes will develop, such as whether buyers will choose cargoes based on lower emissions numbers and pay more for greener cargoes. It is also unclear whether there will be widespread adoption and standardization of the practice.

Some analysts suggested that the next, more difficult step will be finding ways to reduce emissions.

In one move to curb its emissions profile, LNG developer NextDecade in March launched a carbon-capture project tied to its proposed Rio Grande liquefaction terminal in Texas. That followed reports last year that France’s Engie halted talks about a long-term contract with the project at a time when it faced pressure over the emissions profile of US shale gas. Fellow LNG developers Cheniere, Sempra Energy, and Venture Global have since said they are looking at adding carbon capture projects at their own facilities.

Green groups say leave gas behind

Environmentalists caution against pinning long-term plans on natural gas. They pointed out that gas already faces competition from low-cost renewables, and that ultimately, climate policies could further erode market share for gas.

“We’re still a long way from seeing the kind of pledges and actions from governments that will get us to 1.5 degrees Celsius,” said Lorne Stockman of Oil Change International. His group is trying to shape the outcome by lobbying against US financing of overseas gas projects, including in growing Asian energy markets.

The Natural Resources Defense Council, which is also involved in that effort, argued in a December 2020 report that the carbon footprint of US LNG is only “marginally better” than that of coal when considering emissions throughout the supply chain. The group has warned about a lock-in effect if the US continues to build out its LNG export infrastructure.

“There needs to be a recognition from investors that in a climate-conscious world, you’re talking about infrastructure that’s designed to last to the point where we are net-zero,” NRDC analyst Amanda Levin said. “How do you make that money back?”

Mark Brownstein, senior vice president of energy at the Environmental Defense Fund, said, “If oil and gas want to continue to be relevant in many parts of the world, they’re going to have to be clean and low-carbon to compete with those technologies that can provide those services in cleaner, low-carbon ways.”

IHS Markit is subject to a merger with S&P Global pending regulatory and other customary approvals.

LNG

FEATURED

Videos

Middle East LNG market developments

Thought Leadership

S&P Global Platts LNG Service

LNG is rewriting trade flows, challenging the established energy mix and changing commodity dynamics. The interplay between buyers and sellers creates challenges as well as…

Thought Leadership

London Energy Forum

THE LATEST

News and Insight

Nopetro pushes back on LNG project jurisdiction, touts emissions benefits

Nopetro LNG has bolstered its defense of its small-scale LNG facility planned in Florida, touting the lower emissions it says the project would offer and asserting the project is designed for function rather than to evade Federal Energy Regulatory Commission jurisdiction as some challengers have contended.

Responding to arguments against the project’s approach at FERC, Nopetro June 8 outlined positive impacts of the facility, to be located in Port St. Joe in the Florida Panhandle.

“The LNG that Nopetro intends to export will displace diesel fuel and No. 2 oil consumption in markets that are not currently served by cleaner alternative fuels,” it said in a June 8 filing at FERC. The company, along with St. Joe Natural Gas Company and Florida state Representative Jason Shoaf in separate comments, also contended the project would contribute meaningfully to economic recovery around Port St. Joe in the aftermath of Hurricane Michael. In defending the project design, Nopetro said it is targeting inland customers that are harder to reach by using ISO container deliveries.

The facility would be located 1,329 feet away from a dock in Port St. Joe and would receive natural gas from two laterals operated by local distribution utility St. Joe Natural Gas. A third-party truck operator would transport the LNG in International Organization for Standardization containers from the facility to an area subleased from Nopetro, where the containers would move to a third-party stevedore at the dock. Nopetro, in its April 20 petition to FERC, said the case presented an opportunity for FERC to confirm that because the LNG will be exported only through ISO containers at the dock, the project is outside the commission’s jurisdiction(CP21-179).

The company petitioned FERC to declare the regulator lacks jurisdiction over the facility planned in Port St. Joe that would produce LNG for transport by truck and later shipment by sea to Central and South America and the Caribbean.

The request for FERC to define the limits of its reach follows the commission’s March order asserting jurisdiction of New Fortress Energy’s LNG terminal, already in operation in the Port of San Juan, Puerto Rico. In that case, FERC found that the New Fortress facility was an LNG terminal subject to commission jurisdiction because it included facilities dedicated to the importation of LNG in foreign commerce, was located at or near the point of import, and included a pipeline that sends out gas (CP20-466).

In response to Nopetro’s petition, Public Citizen and Delaware Riverkeeper Network warned FERC against creating a major new loophole in its oversight of export terminals.

Delaware Riverkeeper alleged the proposed Nopetro project is the latest in trend of entities “purposely designing natural gas facilities to take advantage of technicalities in past commission rulings that allow these facilities to escape the public interest review required by the Natural Gas Act.”

DOE small-scale rule

In response, Nopetro said it was developing the project to be consistent with DOE’s small-scale LNG rule and to export ISO containers to emerging foreign markets not targeted by larger LNG projects due to practical and economic constraints.

As such, Nopetro’s Project will support DOE’s stated objective of expediting small-scale LNG exports, while “providing significant benefits to [the United States’] trading partners in the Caribbean Central America and South America,” Nopetro wrote. “The commission should not impede Nopetro’s efforts by asserting jurisdiction over the project,” it added.

Countering Delaware Riverkeeper, also Nopetro argued that a DOE delegation order does not govern whether FERC should assert jurisdiction over a project that does not receive gas from a FERC-jurisdictional pipeline, does not export LNG via pipeline, and is not otherwise connected to a pipeline.

Further, Nopetro restated its view that it is not developing facilities at the point of export.

“The commission should not assert jurisdiction over the trucking of LNG in ISO containers, as doing so would introduce needless uncertainty and unreasonably broaden the commission’s jurisdiction into an area regulated by another federal agency,” Nopetro said.

LNG

News and Insight

Natural gas in transition: US LNG developers face shifting tide in global markets

The efforts of Asian and European countries to address climate change and transition their economies toward cleaner energy sources will reshape two key demand centers for US LNG exports.

Asia provides US LNG with plenty of room to grow market share, but the opportunities hinge on the US remaining a low-cost supplier. In Europe, US gas will continue to play a supply balancing role for now, but the EU’s focus on carbon intensity could pose a challenge to US imports over the longer term.

Energy transition in Asia

In Asia, net-zero carbon ambitions will likely require US LNG to arrive in the form of certified low- or carbon-neutral cargoes, according to Jeff Moore, S&P Global Platts Analytics manager for Asian LNG.

Developed economies such as Japan, South Korea and Taiwan could take the lead in aggressively pursuing long-term emissions targets for 2050, said Moore. Importers in those countries have already begun planning on a framework for long-term carbon-neutral LNG contracts. For US producers, the new trade terms could require export cargoes delivered to Asia to meet stringent new quality standards while remaining competitively priced.

ADDITIONAL COVERAGE: Natural Gas in Transition

Historically, key selling points of US LNG have been price-diversification and flexibility, Moore said. Those factors could continue to give US LNG a competitive edge. In Japan, recent events have served to highlight the value of US LNG to the country’s power mix for those very reasons.

Over the past decade, Japan has become increasingly vulnerable to price fluctuations in the Northeast Asian LNG import market as the role of gas for power generation has expanded following the nuclear accident at Fukushima. In that context, the US LNG linkage to Henry Hub has been critical for price diversification. During the recent North Asian winter crisis of 2020-21, the Platts JKM — the benchmark price for spot physical cargoes delivered ex-ship into Japan, South Korea, China and Taiwan — spiked to a record high $32/MMBtu, highlighting the value of a long-term contract linkage to US LNG supply.

In other Asian countries, where natural gas is helping to eliminate coal and back up renewables, it will be difficult to discount the role of US LNG as well. Existing gas infrastructure in Asia and declining indigenous supply will make US gas fundamental to the region’s market in the years ahead, Moore said.

Over the next decade, gas production from nations in South and Southeast Asia is forecast to decline by nearly 20 Bcm/year, according to Platts Analytics -– making the scope for LNG demand growth in Asia immense. The electrification of transport is only starting, and coal-backed financing is on the decline. In Japan, power and heat generation account for 68.9% of LNG demand, while in South Korea it is 53.5%. In Singapore, more importers say they are preparing to expand LNG bunkering operations.

In emerging economies such as China and India, much of the new growth is expected to come from industrial demand, fertilizers, petrochemicals and city gas. In fast-growing sectors such as local gas distribution, imported LNG is expected to help displace dirtier fuels such as biomass.

A foothold in Europe

In Europe, US LNG provided a valuable alternative to traditional pipeline supply from Russia and Norway, playing an expanding role in the market since the first cargoes were delivered in 2016.

The comparatively short shipping distance from the US to Europe, and lower delivered costs, have made US LNG a valuable supply source — particularly for nations in Western Europe. Since 2016, more than 66 Bcm of US LNG, or an average of around 13 Bcm/year, has arrived on the continent’s shores.

Last year, US LNG comprised 4.8% of the European gas market, up from 0.1% in 2016 — surpassing supply from the Netherlands at 4.1% and trailing Qatar only slightly at 5.7%, Gazprom data shows.

LNG will be important as Europe shifts from coal and nuclear power and as gas production in Europe declines, according to Platts Analytics LNG analyst Samer Mosis. That dynamic is under pressure, though, he added.

“A reality wherein the carbon-intensity of energy imports becomes a primary factor is becoming increasingly likely, and in this reality, the connection with the US could see a marked shift,” Mosis said.

LNG output from Qatar, which has been expanding production as well as tending to its emissions profile, is another obstacle to US LNG taking a firmer hold in Europe.

The country is set to boost its LNG production capacity to 126 million mt/year before the end of the decade. It has been busy sealing deals in Europe, adding around 10 million mt/year worth of long-term contracts in 2020 alone. Qatar has also pledged to capture and store more than 7 million mt/year of CO2 by 2027 and offer CO2 offsets in its term contracts with buyers.

“US suppliers looking to ensure they maintain a European option for their exports in the long term will need to take the necessary steps to begin comprehensively and verifiably measuring and mitigating emissions across their value chains,” Mosis said.

The European Commission plans to introduce legislation designed to reduce emissions, including a carbon-border adjustment mechanism and a tool to potentially penalize significant methane emitters.

Amid growing wariness in Europe over the carbon-intensity of US gas, France’s Engie in November 2020 pulled out of talks for a long-term supply deal with US LNG company NextDecade. The French government and environmentalists had reportedly urged Engie to reject the deal because of the environmental impact of LNG sourced from gas produced using hydraulic fracturing.

The same concern prompted the Irish government to impose a moratorium on the development of LNG import infrastructure and to specifically rule out imports of LNG produced from shale gas. Ireland has no LNG import infrastructure at present, but two projects are still under development: US company New Fortress Energy’s Shannon LNG terminal, and a floating import terminal project being developed by UK-listed Predator Oil and Gas.

The EU, however, doesn’t see its policy goals necessarily becoming an impediment to importing US LNG in the coming years. Anne-Charlotte Bournoville, head of international relations and enlargement at the EC’s energy directorate, said the EU and US were “not going in different directions.”

“We both agree that we have to step up measurement, reporting and verification as a necessary condition to the reduction of methane emissions,” Bournoville said in November 2020.

However, European purchasers could show a preference for “best in class” suppliers, she said.

Shell’s head of integrated gas, Maarten Wetselaar, in February called on the EU and US to cooperate on emissions regulations.

“If we can get EU legislation and EU performance standards [and] a similar system in the US so we can declare equivalence between the two, [that] would really help the trade between the two in terms of LNG and would set an example for the world to follow,” he said.

US trade group LNG Allies’ President Fred Hutchison said the turnaround in policy direction under the Biden administration is already easing some of the pressure between Europe and the US.

LNG

News and Insight

US EIA boosts 2021 gas production estimate 1.43 Bcf/d, nudges up price forecast

After tightening its production forecasts in May, the US Energy Information Administration June 8 raised its estimates for US natural gas production for 2021, but lifted its spot gas price forecasts slightly for the period nonetheless.

EIA, in its June Short-Term Energy Outlook, raised by 1.85 Bcf/d to 99.36 Bcf/d its natural gas marketed production estimate and pushed up its Q3 estimate by 1.63 Bcf/d to 99.76 Bcf/d. Yearly averages for 2021 and 2022 were also revised upwards by more than 1 Bcf/d, with 99.29 Bcf/d forecast on average for 2021 and 101.17 Bcf/d expected in 2022.

The agency’s gas consumption forecasts also edged up, but not to the same degree. EIA raised its natural gas consumption estimates by 170 MMcf/d to 70.7 Bcf/d for Q2, and by 250 MMcf/d to 73.94 Bcf/d for Q3. For the full year 2021, it estimated consumption would average 82.85 Bcf/d, up 210 MMcf/d from the prior month’s forecast, but 0.5% below the 2020 average of 83.25 Bcf/d.

“US natural gas consumption declines in the forecast, in part, because electric power generators switch to coal from natural gas as a result of rising natural gas prices,” EIA said. Outside of the power sector, EIA expected residential and commercial gas consumption would rise by 1.2 Bcf/d from 2020 levels in 2021, and industrial consumption would also grow by 700 MMcf/d.

“Rising consumption outside of the power sector results from expanding economic activity and colder winter temperatures in 2021 compared with 2020,” the outlook said. The total consumption levels were expected to be flat in 2022.

LNG impact

Turning to prices, the agency has said higher prices this year mostly reflect growth in LNG exports and rising gas demand outside of the power sector.

EIA raised its forecast for Q2 Henry Hub natural gas spot prices by 8 cents to $2.86/MMBtu; the Q3 forecast also rose 2 cents from the previous month’s estimates to $2.92/MMBtu.

The agency projected Henry Hub natural gas prices would average $3.07/MMBtu for full-year 2021, up 2 cents from the May estimate.

“In 2022, we expect the Henry Hub price will average $2.93/MMBtu amid slowing growth in LNG exports and rising US natural gas production,” the report said.

It noted that every month since November has been among the highest months for US LNG exports on record, with May seeing an estimated 10 Bcf/d exported, a record for the month. Because of strong global demand for LNG, “we forecast that US LNG exports will continue to be high and average more than 9.0 Bcf/d during the remainder of 2021,” the report said.

Following higher-than-average withdrawals in winter 2020-2021 and colder-than-average temperatures in February that dampened production, EIA estimated inventories ended May at almost 2.4 Tcf, or 3% below the five-year average.

“We forecast that inventories will end the 2021 injection season (end of October) at 3.6 Tcf, which would be 4% below the five-year average,” EIA said.

Shifting fuel sources

Turning to generation, EIA forecast that natural gas would make up 36% of the generating fuels mix in 2021 and 35% in 2022, down from 39% in 2020. The prior month’s outlook had estimated gas would average a 35% share for 2021 and 2022.

The agency tied the declines in use of gas to its expectations of a higher delivered price of gas for generators, which it forecast to average $4.09/MMBtu in 2021 (compared with $4.41/MMBtu included in the forecast in May).

Responding to the gas prices, the share of coal in the generation mix was seen rising to 23% in 2021 before falling to 22% in 2022.

EIA continued to highlight growth in renewables, which are expected to rise from 20% of the generation mix in 2020 to 21% in 2021 and 23% in 2022, supported by new capacity additions.

The agency said 4 GW-5 GW of small-scale solar capacity is likely to come online each year during the 2021-22 forecast period.

LNG, Gas & Power

European LNG import capacity