LNG exports boost U.S. natural gas producers (Part 1 of 5)
What is LNG?
Liquefied natural gas (LNG) is natural gas that is converted to liquid form for ease of storage or transport. The primary natural gas for storage is methane (or CH4). The liquefaction process involves the removal of water, heavy hydrocarbons, and other impurities to facilitate transportation of gas. To transport natural gas across water, the fossil fuel must be filtered and liquefied by cooling the gas down to -260º Fahrenheit. This will shrink the volume of natural gas by 600 times, allowing for economical transportation.
Current LNG trade scenario
Global energy demand will continue to increase, driven by population growth and improved standards of living. At the same time, emphasis on sustainability becomes more critical. As a plentiful resource and the cleanest-burning fossil-fuel, natural gas will be a key energy source over the next few years. The global natural gas trade, specifically the LNG trade, is expected to grow at a faster rate than natural gas consumption due to disparities between natural gas consuming and supplying regions.
Growth in LNG transportation
Since 2010, LNG trade has grown at an average yearly rate of 7.5%—above pipeline growth of 4% and domestic natural gas production growth of 1.8%.
Dramatic rise in natural gas production in the U.S. in the past decade
From 2004–2013, dry natural gas production in the U.S. surged, from ~18 trillion cubic feet a year to ~24 trillion cubic feet a year—an increase of ~30%. This rise in production can mainly be attributed to “shale revolution.” The shale revolution generally refers to the widespread application of new technologies, such as hydraulic fracturing and horizontal drilling, to develop areas that were previously uneconomic to drill. The U.S. Energy Information Administration (or EIA) in its Annual Energy Outlook 2014, has projected that the U.S. natural gas production will increase an estimated 56% from 2012–2040. Most of the production is expected to come from shale gas plays. Some of the major shale plays in the U.S. are the Marcellus Shale (in Pennsylvania and West Virginia), the Eagle Ford Shale, the Permian Basin in west Texas and southeast New Mexico, the Fort Worth Basin, including the Barnett Shale in north Texas, and the Williston Basin in North Dakota. According to the EIA projection, the share of shale gas of total U.S. natural gas production increases from 40% in 2012 to 53% in 2040.
In comparison, natural gas consumption increased by 16% from 2004–2013. The electric power utility companies have largely contributed (31% in 2013) to the increased consumption of natural gas in the U.S. In 2013, the total consumption of natural gas in the U.S. was ~26 trillion cubic feet. According to the EIA Annual Energy Outlook 2014, U.S. total natural gas consumption grows from 25.6 trillion cubic feet (Tcf) in 2012 to 31.6 Tcf in 2040—an increase of 23%, or much lower than 53% increase in production as expected by the EIA. This would help the trend of exporting more gas to the international market. To learn how natural gas exports are tied to gas price, please continue reading the next sections in the series.