US set to become major global natgas supplier as exports soar: DOE official

Demand for US natural gas for export -- including both pipeline and LNG exports -- is set to skyrocket through the next few decades, a US Department of Energy official said Thursday, adding the country was on a path to become a top supplier to the international market. "We're going to have substantial increase in pipeline exports to Mexico and LNG exports are going to explode," Carmine Difiglio, DOE deputy director for energy security, said at Hart Energy's DUG East Conference in Pittsburgh.

US gas production peeked last year at an average of around 80 Bcf/d before beginning to decline somewhat. However, the production drop-off is expected to be short-lived as demand for gas for export increases, Difiglio said.

"We expect the growth will resume on a fairly steady basis and reach 83 Bcf/d by the end of 2017," he said.

Difiglio noted that the dramatic increase in shale gas production over the last decade and a half is responsible for growing gas supplies beyond what is needed to meet US demand. Shale gas has grown from being less than 5% of total US gas supplies in 2000 to 56% of supplies today, he said.

"The Marcellus and Utica shale basins continue to be the most productive for natural gas and especially impressive is the increase between last July and now," Difiglio said.

"Year-on-year growth from 2015 to 2016 was greatest in Pennsylvania, Ohio, West Virginia, Oklahoma and North Dakota, but production was declining in the rest of the United States."

While natural gas prices, which over the past several years have declined substantially in line with oil prices, are starting to come back up, Difiglio said there were signs that the increase would be gradual over the span of several years.

"As production has been maintained and prices have been coming down, our storage now is very high and this will be a factor going forward in price recovery," he said.

Difiglio said that as pipeline imports from Canada decline, the US is poised to become a major gas exporter.

"A number of important LNG export projects are underway," he said, predicting that US gas exports would reach 10 Bcf/d by 2022 and double that volume to 20 Bcf/d by 2040.

"We're expected to become one of the biggest gas exporters by 2022, only second to Qatar."

By comparison, the US in 2015 exported 1.78 Tcf (4.88 Bcf/d), according to the Energy Information Administration.

Difiglio warned, however, that even as US LNG export capacity begins to come online it will do so in a softening international LNG market.

"In Asia, gas prices, the Japanese contract, has come down since the post-Fukushima spreads and now is very similar to European gas prices, but considerably higher than US prices, of course," Difiglio said.

"We expect the spread will come back to more normal levels, with the Asian prices being the highest, Europe in middle and the US prices being lowest, but we're not going to see the kind of spread we saw after the Fukushima [nuclear] accident."

Nonetheless, US exports will be very competitive, he predicted, as US LNG enjoys several advantages over global rivals.

"US LNG projects are brownfield projects; they already have pipeline connections to gas supply, they have marine terminals, relatively efficient transition from regasification facilities to liquefaction," he said.

He noted that in Australia, gas projects are "extremely expensive."

"In Australia they have to have new offshore fields," he said. "They have to have pipelines coming from those fields. They have to have greenfield construction of the LNG facilities."

So although US Henry Hub gas prices are expected to increase from their current levels, prices are still expected to remain very competitive compared with other potential LNG exporting countries, he said.

In addition, the US enjoys a high elasticity of supply, something not found in much of the rest of the world.

"If gas prices rise, production increases, so as we export more LNG the gas to supply the LNG terminals is coming from new production. It's not taking away from new consumption," Difiglio said.

Difiglio also said that despite the substantial decline in international gas prices that is expected to impact the US LNG export market just as it begins to get underway, the global supply/demand picture still favors US LNG exports.

This is reflected in the way that US LNG export contracts are written, which works to the benefit of the customer.

"Firms that decline to take LNG deliveries have to take the tolling cost, the liquefaction cost of the facilities themselves. They're not obligated to pay for the natural gas," he said.

--Jim Magill, jim.magill@spglobal.com

--Edited by Lisa Miller, lisa.miller@spglobal.com

http://www.platts.com/latest-news/natural-gas/pittsburgh/us-set-to-become-major-global-natgas-supplier-21799049