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Boom in American Liquefied Natural Gas Is Shaking Up the Energy World

Boom in American Liquefied Natural Gas Is Shaking Up the Energy World

Tuesday, 31 October, 2017 - 09:45
Ships at Cheniere Energy’s Sabine Pass terminal being loaded with liquefied natural gas. Credit Cheniere

A shale gas drilling boom over the last decade has propelled the United States from energy importer to exporter, taking the country 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 United States was supposed to be a big L.N.G. importer, not a world class exporter. 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 African villages.

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.

Mexico Could Be a Model

Experts point to Mexico as an example of how transformative gas can be in a matter of only a few years. As the American shale boom accelerated, producing more gas than its northern neighbor 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 American gas.

Four additional cross-border pipelines are to be completed over the next two years, and many more are in the planning phase. 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.

Because Mexico has a border close to Texas oil and gas fields, pipelines have made the transformation relatively easy. Exporting and importing liquefied gas is more complicated. Gas is expensive to ship overseas because it must be cooled to minus 260 degrees, condensing it to what is called liquefied natural gas, or L.N.G., 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 liquefied gas is usually more expensive than piped gas or even coal, demand and supplies are growing fast.

“This bulge of L.N.G. 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 L.N.G. export capacity is under construction to catapult it from 33 percent to nearly 40 percent of the total international gas trade by 2022, even while piped gas shipments are also growing globally.

Roughly 60 percent of the new L.N.G. export capacity is being built in the United States, 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 American 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 American gas. Russia has already been forced to lower its gas prices to Europe in an attempt to diminish European thirst for American gas. That effort has cost Russian companies revenues and made expansion of L.N.G. facilities in the Arctic less economically feasible.

Russia has gained European market share, in large part because North Sea and Dutch production are declining. But energy experts say that the United States will surely cut into Russian market share with its new L.N.G. exports because Europe is alarmed by President Vladimir Putin’s aggression against Ukraine and interference in the elections of several Western democracies. There are few ways to punish Russia more than reducing its energy revenues, which account for nearly half of the Kremlin’s budget and spreads political benefits to President Putin’s powerful cronies.

“Forcing Russia to compete in a more competitive gas market in Europe and giving European consumers alternative sources of supply significantly weakens Russia’s geopolitical influence in Europe,” said Jason Bordoff, who was a senior energy adviser to President Obama and is now director of Columbia University’s Center on Global Energy Policy. “The transition of the U.S. to one of the world’s largest gas exporters has very significant economic, environmental and geopolitical implications.”

L.N.G. Skeptics in Europe

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 skeptics in Europe and the United States 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.

The United Kingdom may be leading the way, with carbon pricing and other policies designed to phase out coal power by 2025, thus giving gas a big opening. For most of the other big economies, gas is a supplement, especially in France when its nuclear plant fleet needs repairs as it did in 2016. German gas-fired power plants that were dormant in 2015 have come back on.

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.

The biggest increase in demand for liquefied natural gas will come from China and India, as their growing middle classes demand more power and as their industries grow.

The International Energy Agency estimates an annual growth rate of 8.7 percent 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 percent to up to 10 percent by 2020. Cheaper L.N.G. 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 percent annually of gas through 2022, in part driven by cheaper L.N.G. deliveries. Demand for it could increase by 11 percent 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.

L.N.G. Importers Grow Rapidly

Only 15 countries imported liquefied gas in 2005. Twelve years later it 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 International Energy Agency.

At the same time, gas demand for public transport is growing in Iran, Pakistan and Argentina.

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.

Even Saudi Arabia is looking to invest in export terminals around the world to import gas to replace some of the oil the country burns for power.

Such an investment, which could come with the initial public offering of Saudi Aramco planned for next year, could free significantly more oil on global markets.

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.

Major oil companies are understandably bullish on gas in the hope that it extends their economic sustainability as the world moves to new, cleaner energy.

“In the near term, gas will replace coal, in the medium term it will partner with renewables,” said Maarten Wetselaar, director of integrated gas and new energies at Royal Dutch Shell, “and in the long term it will take care of those parts of energy demand that cannot be electrified,” such as ships and aircraft.

(The New York Times)

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