This week’s World Gas Conference in Washington hosted a bunch of upbeat natural gas executives and analysts that expect an exceptionally bright future for the bridge fuel of the future, as natural gas is commonly called these days. With forecasts that U.S. production of natural gas could grow by 60 percent over the next 20 years amid booming demand as consumers seek to replace coal with cleaner alternatives, there is certainly reason to be optimistic.
The United States is already the world’s largest producer of natural gas. It is also an emerging exporter of the commodity, with the potential to disrupt international gas markets as it gets increasingly competitive with other suppliers. Yet there is a shadow on the horizon. In fact, the shadow is much closer: the trade spat between Washington and Beijing.
China is a natural priority for all gas and LNG exporters. It is set to become the world’s top gas importer next year, with demand for gas there expanding by 60 percent between 2017 and 2023, according to the International Energy Agency. The Asian economy will alone account for as much as 37 percent of the world’s gas demand growth over the next five years. It makes all the sense in the world to make sure a lot of your gas goes to China.
So, U.S. producers have been pumping more gas and planning to build a lot more LNG export capacity. To date, the country produces about 72 billion cu ft of natural gas daily, and by the end of the year this should expand to 79 billion cu ft.
Data from the Energy Information Administration shows that in March this year, the daily rate of exports was around 9.577 billion cu ft, with most of this going to Canada and Mexico by pipeline. LNG exports for March stood at 91.54 billion cu ft with the biggest portion, again, going to Mexico. LNG exports to China and India were split almost evenly at 10.74 billion cu ft going to China and 10.83 billion cu ft going to India.
Although not a huge amount, the cargoes to China have the potential to grow as long as producers keep pumping enough to maintain prices at an appealing level. But the trade dispute between China and the United States could hamper this growth.
The latest exchange of tariffs between Washington and Beijing saw the latter include in its list of U.S. goods and commodities oil and coal imports. For now, LNG has been spared, but this has not made producers any happier. It could be added to the list at any time.
French Total’s CEO recently warned that the tariff threat exchange could seriously hurt the chances of U.S. gas competing on a more equal footing with gas coming to China from Russia, Australia, and other rivals. The French company is one of the top LNG traders globally and has been expanding its footprint in the United States, taking part in the construction of two new export terminals in Louisiana.
“The US has a very good game to play in the LNG business, but the market is mainly driven by Asia, [particularly] by China,” Patrick Pouyanne said as quoted by the FT, adding that he hoped it would not “lose the Chinese market”.
Long-term, however, the prospects remain bright, according to industry executives and analysts. The world is moving from coal and oil, and this trend looks irreversible, so gas demand growth is a near certainty. The United States is set to benefit from this demand growth, trade spat or no trade spat.
In its “Gas 2018” report, the IEA said the country will account for almost 70 percent of the growth in global LNG exports between 2017 and 2023, and it will also be the leader in gas production growth in the period. Unless things deteriorate quickly beyond the point of recovery between Washington and Beijing, a remote possibility, those gas industry executives are right to be optimistic.
|Irina Slav for OilPrice.com|