Think the unthinkable: Gas glut could make the U.S. an LNG exporter

The International Energy Agency tells Reuters the world will be swimming in natural gas for another decade as U.S. domestic production surges and other nations ramp up their abilities to export gas as LNG.

Natural gas demand will rise, but it will take until 2020 to absorb the surplus.

“The gas glut will be with us 10 more years,” IEA chief economist Fatih Birol said.

These factors are setting up what was an unthinkable scenario just a few years ago – that the U.S. might become a net exporter of natural gas.

There are some signs of that change in the works.

In the past month, more than 19 billion cubic feet of liquefied natural gas were shipped out of the Gulf of Mexico, about half the amount that will be imported to the region for the month of November, according to Waterborne Energy, a Houston research firm. Given that just a year ago LNG terminals in the region didn’t have the ability to re-export the LNG they took in, this is a big swing.

As of late last week three tankers were waiting in the Gulf of Mexico outside Sabine Pass to load up with LNG that had previously been offloaded at Sabine Pass.

Steve Johnson, president of Waterborne Energy, says despite the increase in re-exports from Gulf terminals, there’s still a fair amount of risk associated with those shipments.

“When you see Qatari volumes going into the U.S. Gulf, even though they have oodles of product, they have pretty strict restrictions on where they’ll allow you to send those volumes,” Johnson said. “They don’t want to be seen as undercutting other long term customers. So you won’t see those re-export tankers going to Japan, for example.”

Johnson thinks some of those re-export shipments that have left the Gulf recently remain unsold, essentially acting as floating storage in search of a good price.

Despite the risk, companies are starting to move forward with plans to actually turn those LNG import terminals into true export terminals with the ability to turn domestically produced natural gas into LNG.

Cheniere Energy, the owners of the Sabine Pass LNG terminal said they have plans to become a true export terminal, including the capacity to take domestically produced natural gas and turn it into LNG.

On Monday Cheniere took a step forward in moving forward with those plans, saying it reached a non-binding agreement with Morgan Stanley Capital to acquire up to 1.4 million tons per year in LNG liquefaction capacity.

The “non-binding” part is key here, however, as there won’t be any capital put into the project until one has companies committed for 10 to 20 years to buy LNG leaving the facility.

Johnson said he believes the Freeport LNG terminal south of Galveston is also working up similar plans. The rumblings are that all the natural gas expected to be produced out of the Eagle Ford Shale in South Central Texas could be directed toward Freeport for export, he said.