“United States of Gas”: on the threshold of global expansion?

The United States has turned into a major gas exporter, as its gas exports exceeded imports this year, according to the U.S. Energy and Information Agency (EIA). “The United States has been a net natural gas importer (on an average annual basis) for nearly 60 years. Declining net pipeline imports from Canada, growing natural gas pipeline exports to Mexico, and increasing exports of liquefied natural gas (LNG) are all contributing to the nation’s ongoing shift toward being a net exporter,” according to EIA.

The Agency reports that in five months of 2017, U.S. exported 36bln cu m of gas mainly from Canada, and exported 36.6bn cu m. The positive difference, though not very large – 600mln cu m, was registered in February, April and May.

Mexico and Canada trade by pipeline accounted for over 29bln cu m of total.

“In fact, United States could be considered a gas exporter yet last year, when export from Sabine Pass was launched,” says Igor Yushkov, senior analyst at the National Energy Security Fund. “Gas flows with Mexico and Canada reflect peculiarities of local infrastructures: somewhere in Canada, for instance, they are supplied gas from U.S. and the vice versa.”

Anyway, the expert believes that the current significant increase in gas output in U.S. is a breakthrough for the country. “Presently, gas price at Henry hub is below $100, though once it reached $600 and part of the world’s projects were oriented at U.S., for instance, development of Arctic offshore Shtokman gas field,” Yushkov says. He believes that LNG exports growth is beneficial for U.S. producers, as low gas price in U.S. will be corrected to comply with the world prices and rise, which is a good impetus for companies to recover more.

EIA reported about record-breaking levels of LNG exports. However, daily shipment of liquefied gas from so far the only LNG terminal – Sabine Pass – has reached 55mln cu m just in May. It is about 1.7bln cu m per month – 10-fold less than Gazprom’s average monthly export.

By various data, the U.S. is expected to boost gas exports to 110bln cu m annually. However, even U.S. experts are not sure about these forecasts. For instance, The Wall Street Journal writes: “Investors helped turn West Texas’ Permian Basin into America’s fastest-growing oil field, but their confidence is cracking over whether drillers can keep production rising. Questions mounted last week after Pioneer Natural Resources Co. Reported that its Permian wells produce gas and natural gas liquids such as propane more than expected…” This may mean early depletion of deposits.

“The United States is actively advertising itself. They have repeatedly misreported gas reserves to attract investors,” Igor Yushkov says and recommends being cautious of American LNG forecasts, since U.S. may face gas deficit in the long-term outlook. In addition, many export terminal construction projects may not be implemented, despite the construction permits granted. “Much depends on the gas prices as well,” Yushkov says.

Key consumers of U.S. LNG for the five months of 2017 were Asian countries – 2bln cu m out of total 7.2bln cu m. The second major importer of U.S. LNG is Mexico – 1.7bln. Europe goes the third leaving behind Latin America. In the period from January to May, U.S. supplied 1bln cu m of LNG to Portugal, Poland, Spain, Netherlands and Turkey.

Japan and Europe imported the U.S. LNG at the highest price. According to EIA, Japanese companies paid $244 per 1,000 cu m of LNG, Dutch and Portuguese ones paid $255. Meantime, the Russian gas cost $179 per 1,000 cu m on the border of Germany for the same period of time, according to the IMF.

An LNG-tanker arrived in Poland in May delivering nearly 100mln cu m of gas, though, as EIA said, at an extremely low price - $151.

“These are very strange figures and run contrary to corporate data. According to Cheniere, in the second quarter of 2017 they sold LNG at the average price of $241. Meantime, EIA says export price for April-May was about $177. Besides, half of the sales from Sabine Pass are calculated by ex-factory price, exclusive of travel costs,” says Alexey Grivach, Deputy Director of the National Energy Security Fund. Basing on EIA data, supplier would suffer operation loss in the amount of $80-$100 per 1,000 cu m of LNG selling it for $151.”

Polish Foreign Minister Witold Jan Waszczykowski’s interview confirms the expert’s words. “We will, we are eager to, we are inclined to import gas from the United States on the condition that the price is competitive with the ones coming the other sources, like from Qatar or Russia. So far, the gas coming from the United States is more expensive. However, if they offer a competitive contract comparable to the imports from Qatar or other regions, we may discuss it," the diplomat said.

Expensive U.S. LNG has affected not only European countries but also trader-companies. Gas liquefying plants in U.S. do not sell gas; they just provide services on the “take or pay” contracts, when the company either takes the product from the supplier or pays the supplier a penalty. For instance, Gazprom is often blamed for such contracts with Ukraine.

Anyway, the U.S. LNG on the European market still fails to gain competitive advantages over Russian gas or LNG from other regions. U.S. producers need a higher gas price in EU. S&P Global Ratings says the new package of sanctions on Russian gas pipeline projects may result in a higher gas price in EU. According to S&P, “if sanctions caused significant delays or cancellation of new pipeline projects, which is not our base case, this could push up gas prices, heighten the risk of supply interruptions from Russia, and increase usage of underground gas storage and liquefied natural gas.”

According to the source, the situation may affect also the talks of Naftogaz of Ukraine and Gazprom on gas transit price via Ukraine after 2019, when the current contract expires. Ukraine demands new, higher transit price from Gazprom and the sides are currently trying to resolve the dispute at the Stockholm Arbitration Court. Any increase of transit price may prompt a rise in gas price or result in halting or interruption of Russian gas supplies to Europe. All this will be quite beneficial for the U.S. gas market players, S&P says.