In the United States, it’s become somewhat of a modern gold rush: drillers racing to free deeply trapped natural gas to quench rising global demand, fueled by an accelerating migration away from coal and the desire for cleaner-burning, greener energy options.
Global natural gas demand grew in 2017 by 3 percent, the highest increase since 2010, the IEA recently reported amid predictions that the global gas trade will rise from one-third in 2017 to nearly 40 percent in 2023, propelled by emerging markets. Chief among them are China and India. As the world’s most-populous countries, these nations are on the hunt for energy and as a result, are rapidly expanding their infrastructures to boost their capacities for more liquified natural gas (LNG) that’s been super-chilled to enable safe, more stable shipping.
The U.S. is eager to quench more of that demand, having emerged last year as an annual net natural gas exporter for the first time in nearly six decades as its build-out of export terminals presses on. According to the IEA, the U.S. accounts for nearly 45 percent of growth in global production and nearly three-quarters of liquified natural gas export growth.
At least for now by many metrics in the notoriously speculative sphere of energy, these are optimistic and opportunistic times for LNG despite potential challenges that include widening adoption of renewable energy.
According to the IEA’s 2018 annual gas market report, China’s growing LNG imports, greater industrial demand and rising U.S. production through its shale gas exploration revolution — accounting for two-thirds of domestic output — signify major shifts that will shape the evolution of global natural gas markets over the next five years. Although U.S. LNG developers face challenges that include regulatory hurdles in getting terminal projects to construction, the IEA expects the U.S. to account for three-quarters of the global growth in natural gas exports over the next half decade.
The U.S.-China trade dispute notwithstanding, the IEA’s estimate reflects U.S. exuberance about its opportunities to flourish with LNG, which has reached dozens of foreign destinations on at least four continents.
One of the world’s most-watched markets is Australia, which is bidding to become the world’s largest exporter of LNG on the backs of long-term contracts with Japan, China and South Korea. Australia’s LNG export earnings are projected to reach nearly $40 billion annually by 2023, according to the country’s Department of Industry, Innovation and Science. The nation’s floating liquified natural gas (FLNG) prospects are high as well, underscored by Royal Dutch Shell’s FLNG facility Prelude, which recently took on gas for the first time in preparation for delivering LNG to global markets.
Yet, Australia’s LNG prominence seems paradoxical: The nation faces unique challenges regarding the impact of its massive exports on domestic natural gas prices. This is something the governments in several territories are trying to address as other major players begin developing import terminals in the southern part of Australia. Proposed import facilities include both land-based and floating regasification units in conjunction with new gas pipelines. Those facilities would import LNG from the spot market and could still be competitive with the current domestic gas prices.
In sub-Saharan Africa, the bonanza of vast, largely untapped natural gas reserves has positioned the region for a potential wave of development as it strives to meet its energy security goals. Trillions of cubic meters of natural gas — the biggest global find of the fossil fuel in decades — are believed to be in a basin off the coast of Mozambique, widely expected to become a force on the global LNG stage in the next decade.
Another offshore natural gas field near South Africa is believed to hold at least 540 billion cubic feet of recoverable reserves. Below that country itself, according to the U.S. Energy Information Administration, there’s an additional estimated 390 trillion cubic feet of onshore shale gas reserves, making that the eighth-largest holder of technically recoverable shale gas in the world, though reaching it has been elusive because of regulatory delays and technical issues. Natural gas reserves also have been pinpointed in Angola, Ghana, Malawi, Nigeria and Tanzania, offering the region a once-in-a-generation opportunity to capitalize.
Intent on making the most of that, the U.S. Agency for International Development’s Power Africa initiative recently launched the Gas Roadmap for sub-Saharan Africa. Built on the premise that there’s potential for roughly 400 GW of gas-generated power in the region, that blueprint seeks to add about 16,000 MW of gas-fired power in nine countries by 2030. With demand from commercial and industrial organizations for higher levels of access and reliability, this initiative can help drive investments from U.S. companies of upwards of $175 billion in gas-to-power projects. That, along with exploration spending and the continued buildout of infrastructure to accommodate its output in Mozambique and beyond, presents the region with a possible path to prosperity and a resounding answer to the public’s growing demand for low-carbon energy.
IEA Chief: ‘Gas Has a Bright Future,’ Though Challenges Remain
According to the 2019 Strategic Directions: Natural Gas Report survey of natural gas industry leaders, roughly one-third of respondents cast themselves as very optimistic about the future growth of the oil and gas sector for the rest of this decade. In 2017, only 13 percent felt that way. An additional 54 percent of the respondents in 2018 considered themselves “optimistic,” up from roughly 45 percent in 2017. Such enthusiasm from 2020 to 2030 remained flat over last year, with slightly more than 60 percent feeling optimistic in some form, according to the polling by Black & Veatch (Figure 1).
FIGURE 1. What is your general outlook on the future growth of the global oil and gas industry?
According to the IEA, the industrial sector supplants power generation as the chief driver of global natural gas demand growth, with the bulk of that increase coming from emerging markets — largely in Asia — that require the commodity to fuel industrial processes and for feedstock for chemicals and fertilizers. China, driven by continuous economic growth and strong policy support to curb air pollution, will account for 37 percent of the global rise in natural gas consumption between 2017 and 2023, ultimately becoming the world’s biggest importer of the fossil fuel, the agency said.
“While gas has a bright future, the industry is not without its challenges,” including the need for gas prices to remain affordable relative to other fuels in emerging markets, said Fatih Birol, the IEA’s executive director.
Royal Dutch Shell, the world’s biggest LNG trader, recently announced plans with partners to build a gas-liquefaction and expert terminal in western Canada’s coastal British Columbia, home to sizable shale reserves. Believing global liquified natural gas demand will double by 2035, the project’s developers strategize that by building now, the LNG buyers will come. And, Shell says, the site’s relatively short shipping distance to northern Asia will allow it to compete with LNG shippers to that continent from the Gulf of Mexico through the Panama Canal.
“We believe LNG Canada is the right project, in the right place, at the right time,” Ben van Beurden, Royal Dutch Shell’s CEO, said in a statement. “Supplying natural gas over the coming decades will be critical as the world transitions to a lower carbon energy system.”
Increases in Investment Support Optimism
Underscoring similar forward-thinking optimism, oil and natural gas drillers are planning to pump up their borrowing, according to a survey released in September 2018 by Haynes and Boone, an international law firm that tracks oil and gas bankruptcies. More than three-quarters of companies that responded say they’ll borrow more despite market challenges, including the vexing issue of pipeline capacity shortcomings and bottlenecks.
To be sure, whether or not to build a new LNG export terminal is a lengthy, highly complex and multi-billion-dollar decision. Such projects require major financing and, most certainly, the foresight to launch plans now, knowing that getting regulatory approvals even before the first shovel of dirt means such projects take years to become a reality.