The natural-gas economy

LNG infrastructure is expanding in the U.S., but not without its detractors.

In mid-June, the Philadelphia City Council approved a plan to build a $60 million liquefied natural gas (LNG) facility in Southwest Philadelphia. The Passyunk Energy Center will be a public-private partnership between city-owned Philadelphia Gas Works and Liberty Energy Trust.

Across the river in southern New Jersey, a group of New York investors plans to build an LNG port along the Delaware River, presumably to export LNG produced by a related company with operations in north-central Pennsylvania. The investment group has also proposed to create a liquefaction plant near the source of the fracked natural gas, the Marcellus Shale fields, in Wyalusing, Pennsylvania.

These developments are emblematic of what’s going on in the United States, in what some call the new natural-gas economy. The U.S. is an emerging LNG supplier, accounting for four percent of global LNG exports in 2017. The country is projected to become the third largest LNG producer in the early 2020s, after Australia and Qatar.

LNG Export Terminals

The first LNG export terminal in the contiguous 48 states, in Louisiana, entered service in 2016 following Department of Energy approval, helping to make the U.S. a net exporter of gas in 2017 for the first time since 1957. The DOE recently gave its preliminary approval to retrofit an import terminal in Maryland to export LNG, a facility already connected to a pipeline that would bring gas straight from Marcellus Shale. About 16 other export terminal proposals now await approval by the DOE.

According to a recent report, U.S. liquefaction capacity will have increased thirteen-fold by 2022 over the previous five years. The country is expected to have spent over $167 billion on new liquefaction terminals between 2017 and 2022, according to GlobalData, a data and analytics company.

These developments are not without controversy. Environmentalists squawk when LNG projects are announced—including the ones in Philadelphia and South Jersey—on the grounds that the U.S. should be weaning itself, and the rest of the world, off fossil fuels. It’s worth mentioning, however, that, as fossil fuels go, natural gas burns a lot cleaner than some others, including diesel.

As noted in a 2012 DOE report, which gave the thumbs-up to LNG exporting, “U.S. natural gas prices increase when the U.S. exports LNG.” Although the report identified a net benefit to the U.S. economy from exporting, chemicals manufacturers, which use natural gas as a feedstock, howled in protest. The use of LNG is also on the rise domestically to fuel vehicles. UPS, for example, recently added 50 LNG vehicles to its alternative fuel fleet as part of an investment of over $90 million in natural gas. But transporting LNG domestically on the water has its obstacles, thanks to the Jones Act. (See sidebar on page 3)

Policymakers in Philadelphia, New Jersey, and elsewhere, point to advantages from LNG in diversifying fuel sources for utilities and in the areas of economic development and jobs creation. The Trump administration is also encouraging U.S. producers to export surplus gas, especially to Europe.

According to Nikos Tsafos, a senior fellow at the Center for Strategic and International Studies in Washington, D.C., Europe currently imports mostly piped gas from Russia, Norway, and Algeria, while LNG accounted for 12 percent of European gas demand in 2017. The U.S. supplied four percent of Europe’s LNG in 2017, ranking behind Qatar, Algeria, Nigeria, Norway, and Peru, and, at less than 100 billion cubic feet, amounted to less than 1.5% of Europe’s gas imports from Russia. Around 14% of US LNG exports went to Europe in 2017.

“Europe can import more LNG using existing infrastructure,” noted Tsafos, adding that the utilization rate for import terminals in Europe averages 29%, and is as low as six percent in some facilities.

“Despite this low utilization rate,” Tsafos said, “there are many new facilities proposed in Europe. If all these projects were built, Europe’s LNG import capacity would grow by 50%.” It’s impossible to predict at this point the precise increase in Europe’s future LNG importing capacity, but it is clear that Europe has growth potential as a U.S. LNG export market.

Regional Demand

Closer to home, the U.S. is expected to contribute more to capacity growth in North America’s LNG industry over the next few years as compared to its neighbors to the north and south, while the regasification capacity is expected to remain the same for the region, according to GlobalData.

Its report forecasts that total liquefaction capacity in North America will increase to 405.1 million tons per year (mtpa) in the next three years, for an average annual growth rate of 60.6% since 2017. North America is expected to see capital expenditures of $285.5 billion on new liquefaction projects, of which 58% will be spent in the U.S. Thirty-eight liquefaction terminals are expected to have become operational between 2018 and 2022 and total planned liquefaction capacity in North America in 2022 is expected to rise to 376.3 mtpa. North America will account for 72% of total global capacity from planned and announced projects between 2019 and 2023, according to the report.

GlobalData expects liquefaction capacity additions in Canada of around 101.1 mtpa by 2022. The country is expected to spend roughly $105.3 billion on the development of new liquefaction terminals.

“Canada is adding considerable LNG export capacity as its natural gas exports via pipelines to the U.S., are decreasing,” said Soorya Tejomoortula, an oil and gas analyst at GlobalData. Mexico is expected to add around 16.4 mtpa of liquefaction capacity by 2022 and is projected to spend around $12.9 billion on the development of new liquefaction terminals by 2022.

But the U.S. will lead North America in terms of liquefaction capacity additions with 258.8 mtpa, increasing from 19.5 mtpa in 2017 to 287.3 mtpa by 2022, with capital expenditures of $167.28 billion between 2017 and 2022.

“The U.S. is adding substantial LNG liquefaction capacities, redrawing the global LNG landscape,” said Tejomoortula. “Booming natural gas production, especially from shale, is driving the country’s LNG exports.”