U.S. exports of liquefied natural gas (LNG) have been growing steadily and reached a new peak of 4.7 billion cubic feet per day (Bcf/d) in May 2019, according to the latest data published by the U.S. Department of Energy’s Office of Fossil Energy. This year, the United States became the world’s third-largest LNG exporter, averaging 4.2 Bcf/d in the first five months of the year, exceeding Malaysia’s LNG exports of 3.6 Bcf/d during the same period. The United States is expected to remain the third-largest LNG exporter in the world, behind Australia and Qatar, in 2019–20.
U.S. LNG exports have increased as four new liquefaction units (trains) with a combined capacity of 2.4 Bcf/d—Sabine Pass Train 5, Corpus Christi Trains 1 and 2, and Cameron Train 1—came online since November 2018. Although Asian countries have continued to account for a large share of U.S. LNG exports, shipments to Europe have increased significantly since October 2018 and accounted for almost 40% of U.S. LNG exports in the first five months of 2019. LNG exports to Europe surpassed exports to Asia for the first time in January 2019.
A warm winter in Asia and declining price differentials between European and Asian spot natural gas prices led to increased volumes of U.S. LNG exports delivered to Europe. Europe’s total LNG imports in the winter of 2018–19 averaged 10.2 Bcf/d, 60% higher than in the previous two winters and the highest winter average since at least 2013, according to CEDIGAZ LNG data. LNG imports to Europe have been relatively low in recent years, but they are expected to grow as new LNG supply comes online and European countries continue to increase natural gas consumption as part of their decarbonization initiatives.
Total LNG imports in the three largest global LNG markets—Japan, China, and South Korea—started to decrease in February 2019 amid a milder-than-normal winter and, in Japan, the restart of nuclear power plants. China, which became the world’s second-largest LNG importer in 2017 (surpassing South Korea) and the world’s largest importer of total natural gas in 2018 (surpassing Japan and Germany), continued to increase LNG imports. Its LNG imports were 20% (1.3 Bcf/d) higher in the first five months of 2019 compared with the same period last year as the country continued to expand LNG import capacity and implement coal-to-gas switching policies.
LNG from the United States accounted for 7% of China’s total LNG imports in the first six months of 2018. In September 2018, China imposed a 10% tariff on LNG imports from the United States, and in the months since then (October 2018 through May 2019), U.S. LNG has accounted for 1% of China’s LNG imports. Because no long-term contracts between suppliers of U.S. LNG and Chinese buyers exist, LNG from the United States is supplied to China on a spot basis. Spot LNG shipments are dispatched based on the prevailing global spot LNG and natural gas prices, and the tariff made LNG imports from the United States to China less competitive.
Recent declines in price differentials between European pricing benchmarks (including National Balancing Point (NBP) in the United Kingdom and Title Transfer Facility (TTF) in the Netherlands) and Asian spot LNG prices (including Japan LNG spot prices) have affected the flow of flexible (i.e., without a fixed destination specified in an offtake LNG contract) U.S. LNG exports.
Because the round-trip transportation costs from the U.S. Gulf Coast to Europe are about $1.50 per million British thermal units (MMBtu) lower than those to Asian markets, a sufficiently narrow price spread between European and Asian spot natural gas/LNG prices will make Europe the preferred destination for exporters of U.S. LNG. The spread between Japan spot LNG and NBP/TTF prices was about $1.00/MMBtu in December 2018 and January 2019, and it reached a low of $0.60/MMBtu in April, which supported continued high U.S. LNG exports to Europe.
The U.S. Energy Information Administration (EIA) expects U.S. LNG exports will continue to increase in 2019 as the first trains at the two new liquefaction facilities (Freeport LNG in Texas and Elba Island LNG in Georgia) come online in the next few months. In its latest Short-Term Energy Outlook, EIA forecasts U.S. LNG exports will average 4.8 Bcf/d in 2019 and 6.9 Bcf/d in 2020 as new liquefaction trains at Cameron, Freeport, and Elba Island are commissioned in the next 18 months.
By 2021, six U.S. liquefaction projects are expected to be fully operational. Another two new U.S. liquefaction projects (Golden Pass in Texas and Calcasieu Pass in Louisiana) that started construction this year are expected to come online by 2025. By that time, EIA projects that the United States will have the world’s largest LNG export capacity, surpassing both Qatar and Australia.
Source: U.S. Energy Information Administration, Bloomberg L.P., and Japan METI
Note: Japan LNG spot price is the average price of spot LNG imported into Japan in the months shown. Singapore LNG is a Singapore-based spot LNG price index. National Balancing Point is the U.K.-based spot natural gas price index.
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In 2020, renewable energy sources (including wind, hydroelectric, solar, biomass, and geothermal energy) generated a record 834 billion kilowatthours (kWh) of electricity, or about 21% of all the electricity generated in the United States. Only natural gas (1,617 billion kWh) produced more electricity than renewables in the United States in 2020. Renewables surpassed both nuclear (790 billion kWh) and coal (774 billion kWh) for the first time on record. This outcome in 2020 was due mostly to significantly less coal use in U.S. electricity generation and steadily increased use of wind and solar.
In 2020, U.S. electricity generation from coal in all sectors declined 20% from 2019, while renewables, including small-scale solar, increased 9%. Wind, currently the most prevalent source of renewable electricity in the United States, grew 14% in 2020 from 2019. Utility-scale solar generation (from projects greater than 1 megawatt) increased 26%, and small-scale solar, such as grid-connected rooftop solar panels, increased 19%.
Coal-fired electricity generation in the United States peaked at 2,016 billion kWh in 2007 and much of that capacity has been replaced by or converted to natural gas-fired generation since then. Coal was the largest source of electricity in the United States until 2016, and 2020 was the first year that more electricity was generated by renewables and by nuclear power than by coal (according to our data series that dates back to 1949). Nuclear electric power declined 2% from 2019 to 2020 because several nuclear power plants retired and other nuclear plants experienced slightly more maintenance-related outages.
We expect coal-fired electricity generation to increase in the United States during 2021 as natural gas prices continue to rise and as coal becomes more economically competitive. Based on forecasts in our Short-Term Energy Outlook (STEO), we expect coal-fired electricity generation in all sectors in 2021 to increase 18% from 2020 levels before falling 2% in 2022. We expect U.S. renewable generation across all sectors to increase 7% in 2021 and 10% in 2022. As a result, we forecast coal will be the second-most prevalent electricity source in 2021, and renewables will be the second-most prevalent source in 2022. We expect nuclear electric power to decline 2% in 2021 and 3% in 2022 as operators retire several generators.
Source: U.S. Energy Information Administration, Monthly Energy Review and Short-Term Energy Outlook (STEO)
Note: This graph shows electricity net generation in all sectors (electric power, industrial, commercial, and residential) and includes both utility-scale and small-scale (customer-sited, less than 1 megawatt) solar.
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The tizzy that OPEC+ threw the world into in early July has been settled, with a confirmed pathway forward to restore production for the rest of 2021 and an extension of the deal further into 2022. The lone holdout from the early July meetings – the UAE – appears to have been satisfied with the concessions offered, paving the way for the crude oil producer group to begin increasing its crude oil production in monthly increments from August onwards. However, this deal comes at another difficult time; where the market had been fretting about a shortage of oil a month ago due to resurgent demand, a new blast of Covid-19 infections driven by the delta variant threatens to upend the equation once again. And so Brent crude futures settled below US$70/b for the first time since late May even as the argument at OPEC+ appeared to be settled.
How the argument settled? Well, on the surface, Riyadh and Moscow capitulated to Abu Dhabi’s demands that its baseline quota be adjusted in order to extend the deal. But since that demand would result in all other members asking for a similar adjustment, Saudi Arabia and Russia worked in a rise for all, and in the process, awarded themselves the largest increases.
The net result of this won’t be that apparent in the short- and mid-term. The original proposal at the early July meetings, backed by OPEC+’s technical committee was to raise crude production collectively by 400,000 b/d per month from August through December. The resulting 2 mmb/d increase in crude oil, it was predicted, would still lag behind expected gains in consumption, but would be sufficient to keep prices steady around the US$70/b range, especially when factoring in production increases from non-OPEC+ countries. The longer term view was that the supply deal needed to be extended from its initial expiration in April 2022, since global recovery was still ‘fragile’ and the bloc needed to exercise some control over supply to prevent ‘wild market fluctuations’. All members agreed to this, but the UAE had a caveat – that the extension must be accompanied by a review of its ‘unfair’ baseline quota.
The fix to this issue that was engineered by OPEC+’s twin giants Saudi Arabia and Russia was to raise quotas for all members from May 2022 through to the new expiration date for the supply deal in September 2022. So the UAE will see its baseline quota, the number by which its output compliance is calculated, rise by 330,000 b/d to 3.5 mmb/d. That’s a 10% increase, which will assuage Abu Dhabi’s itchiness to put the expensive crude output infrastructure it has invested billions in since 2016 to good use. But while the UAE’s hike was greater than some others, Saudi Arabia and Russia took the opportunity to award themselves (at least in terms of absolute numbers) by raising their own quotas by 500,000 b/d to 11.5 mmb/d each.
On the surface, that seems academic. Saudi Arabia has only pumped that much oil on a handful of occasions, while Russia’s true capacity is pegged at some 10.4 mmb/d. But the additional generous headroom offered by these larger numbers means that Riyadh and Moscow will have more leeway to react to market fluctuations in 2022, which at this point remains murky. Because while there is consensus that more crude oil will be needed in 2022, there is no consensus on what that number should be. The US EIA is predicting that OPEC+ should be pumping an additional 4 million barrels collectively from June 2021 levels in order to meet demand in the first half of 2022. However, OPEC itself is looking at a figure of some 3 mmb/d, forecasting a period of relative weakness that could possibly require a brief tightening of quotas if the new delta-driven Covid surge erupts into another series of crippling lockdowns. The IEA forecast is aligned with OPEC’s, with an even more cautious bent.
But at some point with the supply pathway from August to December set in stone, although OPEC+ has been careful to say that it may continue to make adjustments to this as the market develops, the issues of headline quota numbers fades away, while compliance rises to prominence. Because the success of the OPEC+ deal was not just based on its huge scale, but also the willingness of its 23 members to comply to their quotas. And that compliance, which has been the source of major frustrations in the past, has been surprisingly high throughout the pandemic. Even in May 2021, the average OPEC+ compliance was 85%. Only a handful of countries – Malaysia, Bahrain, Mexico and Equatorial Guinea – were estimated to have exceeded their quotas, and even then not by much. But compliance is easier to achieve in an environment where demand is weak. You can’t pump what you can’t sell after all. But as crude balances rapidly shift from glut to gluttony, the imperative to maintain compliance dissipates.
For now, OPEC+ has managed to placate the market with its ability to corral its members together to set some certainty for the immediate future of crude. Brent crude prices have now been restored above US$70/b, with WTI also climbing. The spat between Saudi Arabia and the UAE may have surprised and shocked market observers, but there is still unity in the club. However, that unity is set to be tested. By the end of 2021, the focus of the OPEC+ supply deal will have shifted from theoretical quotas to actual compliance. Abu Dhabi has managed to lift the tide for all OPEC+ members, offering them more room to manoeuvre in a recovering market, but discipline will not be uniform. And that’s when the fireworks will really begin.
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