American LNG exports surge with European demand | FT Energy Source
Exports have rocketed, particularly for European producers. Last December, the US became the world’s biggest exporter of this super chilled fuel. But as the FT’s Justin Jacobs explains, not everyone’s happy about the expansion in output, and the effect it may have on the environment
Produced by Alpha Grid. Presented by Justin Jacobs
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These are boom times for America's liquefied natural gas industry. Right now, producers can't fill LNG carriers quickly enough for the export markets of Europe and Asia.
We're cooling it, cleaning it, and liquefying it so that it can be stored and transported across the world.
We have a very large arbitrage between Europe, Asia, and the US. $10 US gas is $60 to $80 international gas. That's a lot of money.
If anybody would have told any of us up to very recently that we would see these levels of prices and this amount of tightness in the market we would have shrugged that off.
Although not everyone is happy about this sudden rise in global demand for American LNG.
They are driving up the price of what it costs us to heat and cool our homes because they want to take the natural gas and ship it overseas and make 10 times as much as they could selling natural gas in the United States.
America's exports of LNG have risen dramatically in recent years. And last December it became the world's biggest exporter of the super-chilled fuel for the first time, topping Australia and Qatar. That's despite a sharp drop in demand during the pandemic, which cast doubt on future investment in America's LNG industry, especially as government efforts to combat climate change seemed to dim the outlook for fossil fuels.
We can and we will deal with climate change. It's not only a crisis, it's an enormous opportunity, an opportunity for America to lead the world in clean energy.
Yet this year's energy crisis, exacerbated by Russia's invasion of Ukraine, has spurred a dramatic turnaround, an output measured in billions of cubic feet per day, or BCF, is once again claiming.
I can remember back in 2008, production was at 55 BCF. Today it's at 97 and a half. By the end of the year it'll be 100 BCF. Next year it'll be 105. And we grow from there. The gas is very much there if we can get it to the sea shores.
The Gulf coast around the Texas/Louisiana border is the heart of America's LNG export industry. The enormous Sabine Pass facility, where natural gas is processed into LNG ready for shipping, is just one of several near here. It's owned by Cheniere, the nation's largest LNG exporter.
We use a process that makes it sweet, dry, clean, lean and cold. So sweet, we remove the acids, any CO2 or H2S dry, then we remove any moisture. Clean, we remove any mercury that can potentially contaminate the downstream products. Then we make it lean. We remove heavy hydrocarbons, and finally cool it down so it's liquid at atmospheric pressure.
The natural gas is transformed into liquid by chilling it to a temperature of about minus 162 degrees Celsius. The LNG created occupies just 1/600 of the volume of natural gas, a huge advantage when it comes to transportation. Most of Cheniere's output is contracted to its customers - utilities, energy traders, and oil majors - for the next decade plus. Those providers will route ships to the areas of highest demand.
We saw that in Asia in the back half of last decade, Latin America a little over a year ago, when it had extreme droughts, and now, of course, as Europe has become - the way we refer to it as the market of most need.
Reflecting a broader trend across the US LNG industry, over 70 per cent of the volume produced at Cheniere's facilities this year has gone to Europe, about twice last year's level. With output currently near maximum, a wave of approvals to build more LNG plants like this one have been granted. But for some, in a region that faces the annual threat of hurricanes, that's a real concern.
We currently have three LNG facilities that export the natural gas in southwest Louisiana. And they have plans to put seven more. Really just insanity to try to place these facilities directly in the eyes of storms that keep coming.
At this press conference they're calling for a halt to the LNG expansion needed to satisfy global demand, and not just because of the hurricane risk. Though a former oil industry worker himself, James Hiatt believes LNG's contribution to global warming is being ignored.
I really feel for the Europeans, and I mean, deeply, you know? I think what the best option would be is to really invest in a transition in solar and wind. And yes, it's not the perfect solution today, but it will cut the dependency and the need for such a huge amount of gas. We will have to transition at some point. Why are we delaying it, except for the profit margins of these companies?
Natural gas consists largely of methane, a potent greenhouse gas. But when it comes to emissions, advocates argue LNG is the cleanest fossil fuel, as it produces about 40 per cent less carbon dioxide than coal when it's burned and 30 per cent less than oil. It emits negligible amounts of sulphur, mercury, and particulates. Cheniere says its introduction of greenhouse gas emissions data for each of its LNG cargoes is evidence of the company's enhanced environmental transparency.
We are going to continue to be secure, affordable, reliable, and have the leg to the stool that is our climate commitment that we think will ensure natural gas's role in the energy transition for decades and decades.
President Biden certainly seems convinced. In March, he promised to ramp up LNG exports to Europe, arguing increased energy security for allies is compatible with his ambitious net-zero climate goals. That long-term commitment is vital for companies like Cheniere, whose multibillion-dollar facilities typically require up to 20 years of guaranteed contracts to see a return on investments. And though Europe is the priority market now, the future of American LNG may well be tied to another continent entirely.
Europe has 12 per cent of its energy needs met by coal. Asia has 46 per cent of its energy needs met by coal. So over the longer term, all of that coal is up for transition. And the US very much has a role to play.
For campaigners like James Hiatt, though, a transition to LNG is no solution at all.
We're just delaying the inevitable. We will run out of fossil fuels.
Environmental campaigners may want the dependency on gas reduced immediately, but that's not happening this year. American LNG has helped alleviate massive disruption to Europe's gas supply. And if exporters are right tankers like this will be sailing to global markets for many decades to come.