LNG boom in US upsets energy world

The frenzy of drilling in shale gas fields has propelled it from a big importer to a world-class exporter.

LNG boom in US upsets energy world

A shale gas drilling boom over the last decade has propelled the United States from energy importer to exporter, and the country has taken a giant leap toward the goal of energy independence declared by presidents for half a century.

Now the upheaval of the domestic energy sector is going global. A swell of gas in liquefied form shipped from Texas and Louisiana is descending on global markets, producing a broader glut and lower energy prices.

The US was supposed to be a big importer, not a world-class exporter, of liquefied natural gas, or LNG. The frenzy of drilling in shale gas fields across the country changed that over the last decade, creating a glut far larger than domestic demand could possibly consume. Companies that spent billions of dollars to build import platforms suddenly had useless facilities until they spent billions more to convert them for export.

The switch will remake the global gas market for decades to come. Energy experts are predicting that the transformation will weaken Russia’s
dominance over European power markets, help clean the air in cities across China and India by replacing the burning of coal, and eventually provide cheaper and cleaner fuel to Africa.

The full dimensions of the wave over the next four or five years, including its impact on the environment and climate change, are hard to predict, in part because they will depend on the policies adopted by many governments. But as several American multibillion-dollar export terminals come on line, few doubt that the influence of more gas, as the cleanest burning fossil fuel, will be consequential for powerful and poor countries alike.

Experts point to Mexico as an example of how transformative gas can be in a matter of only a few years. As the US shale boom accelerated, producing more gas than its northern neighbour could consume, Mexico decided to import as much cheap gas as possible. Mexico replaced its dirtier-burning coal and petroleum products, and now more than a quarter of the country’s electricity is powered by US gas.

The gas imports have improved air quality, helped Mexico reach goals to reduce its carbon footprint to meet Paris climate agreement targets, and freed capital to invest in more exploration and production of oil, which is more valuable on world markets.

Exporting and importing liquefied gas is more complicated. Gas is expensive to ship overseas
because it must be cooled to minus 162 degrees Celsius, condensing it to LNG, to be shipped in giant tankers. The importing country then has to turn the liquid back into gas so it can be transported by pipelines. But even though LNG is usually more expensive than piped gas or even coal, demand and supplies are growing fast.

“This bulge of LNG is going to completely upset the apple cart of world energy politics and the global competition of fuels that is still hard for people to comprehend,” said Amy Myers Jaffe, an energy security expert at the Council on Foreign Relations. “Russia will be the loser. We can already see their leverage on the gas market in Europe and the leverage they are trying to create over China dissipating.”

Enough LNG export capacity is under construction to catapult it from 33% to nearly 40% of the total international gas trade by 2022, even while piped gas shipments are also growing globally. Roughly 60% of the new LNG export capacity is being built in the US, which only began exporting large supplies last year, giving Washington a new tool for its foreign policy toolbox and raising the country to the top tier of exporters, which includes Qatar, Australia and Russia.

Lithuania became the first former Soviet republic to import a shipment of US natural gas in August, a symbolic move that came as Washington pledged to reduce the dependency of Europe on Russia, which has been known to use gas as a political weapon.

The Lithuania shipment came only a month after Poland became the first Eastern European country to import US gas. Russia has already been forced to lower its gas prices to Europe in an attempt to diminish European thirst for US gas. That effort has cost Russian companies revenues and made expansion of LNG facilities in the Arctic less economically feasible.

Europeans tend to be suspicious of hydrocarbons like gas, and especially the hydraulic fracturing methods that coax gas from hard shale rock, much preferring renewables. Many sceptics in Europe and the US note that the production and transport of gas can leak methane, a powerful greenhouse gas, making it less reliable as an environmental solution.

Natural gas consumption in Europe had been declining in recent years as the continent moved strongly to renewables and as some countries
also burned more cheap coal to replace nuclear. But demand for gas rebounded in 2015 and 2016, principally at the expense of coal.

Oil company executives with a stake in natural gas say gas is a perfect complement to Europe’s push for renewable energy, by maintaining power when the sun does not shine or the wind does not blow. “Increasingly, European countries are seeing that they do need gas-fired power generation to balance out renewables,” said Tor Martin, senior vice president for marketing and supply at Statoil, the Norwegian oil and gas company that is also investing in offshore wind power.

Displacing coal

The biggest increase in demand for LNG will come from China and India, as their growing middle classes demand more power and as their industries grow. The International Energy Agency (IEA) estimates an annual growth rate of 8.7% in Chinese gas consumption through 2022.

Gas is more expensive than coal in China, but the government is phasing out coal-fired boilers and switching to gas-fired ones, principally to help relieve air contamination in Beijing and other cities. The government is aiming to replace coal in textile factories.

Under the country’s five-year economic plan, through 2020, gas is the only fossil fuel that is supposed to increase its share in the energy consumption mix for heating, cooling and even commercial truck fleets — from 6% to up to 10% by 2020. Cheaper LNG could also offset China’s future dependence on piped Russian gas and force Russian companies to lower prices to stay competitive.

In India, the energy agency projects an average growth of 6% annually of gas through 2022, in part driven by cheaper LNG deliveries. Demand for it could increase by 11% annually.

“In many cases, the increased use of gas, particularly in some of the importing markets in Asia, has the potential to displace coal, so it can play a very positive role in mitigating the growth of emissions,” said Tim Gould, a senior energy analyst at the energy agency.

Only 15 countries imported LNG in 2005. Twelve years later, that number has more than tripled, with such major economies as Pakistan, Thailand, Jordan, Egypt, Poland and Colombia becoming importers in the last few years. Bahrain, Bangladesh, Ghana, Haiti, Namibia, Panama, the Philippines and Uruguay are building import terminals, according to the IEA.

Germany has largely given up on nuclear power, and it needs natural gas without Russian strings to replace some of the lost power. African countries are beginning to deploy offshore modular terminals to import gas, which should help deliver power to rural villages, although the lack of pipelines will slow the process.

Many countries see the replacement by gas of coal and heating oil as a relatively painless way to reduce their carbon footprint, especially if potential methane leakage can be addressed. But many environmentalists say gas is only useful as a bridge fuel to a new age of renewables, if the bridge is short.

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