For some reason there doesn't seem to be much of a national discussion about the amazing shift in the American energy trade. Yet in a few short years the United States will become a net exporter of energy products and petrochemicals. That will erase an energy trade deficit that peaked at $321 billion in 2011. Fast forward another decade or so and the trend could easily deliver sustainable annual trade surpluses of equal magnitude.
One driving force in America's approaching dominance of global energy markets: liquefied natural gas (LNG). The opportunity for investors is massive, which sometimes makes the numbers difficult to comprehend. So here's an easier number to understand: 10, as in 10 incredible facts about American LNG exports.
1. Export facilities come in all shapes and sizes.
An LNG export facility comprises a connection to a natural gas pipeline (the input), natural gas processing equipment and monster liquefaction infrastructure referred to as trains (the process), and special equipment to load seafaring cargo ships that can supercool the product and sling it across the globe (the output).
But American companies have gotten pretty creative with the other details. Some of the proposed LNG export terminals are brand new, while some actually used to be LNG import terminals that got makeovers. Most facilities are planned for the Gulf Coast, but a handful are on the Atlantic Coast, or in Puerto Rico or Alaska. Many will be located onshore, while some will go on small islands or even float in the middle of the Gulf of Mexico. Some are tiny, and others, such as the Sabine Pass project that Cheniere Energy (NYSEMKT:LNG) owns, are absolutely massive.
2. The first terminal is the biggest -- and could stay that way.
In 2016 Sabine Pass made history by shipping its first cargo (to Brazil) and thus becoming the first new major LNG export terminal in the country. Due to the long construction times, an 11-figure price tag, and uncertainty concerning the market opportunity during the planning process, Cheniere Energy had to go big. Really big.
Today the LNG export terminal has a capacity of 2.8 billion cubic feet per day (Bcf/d), more than any other approved facility in the United States. But it'll soon get even bigger: The company is tacking on another 1.4 Bcf/d of capacity, which might make it the largest facility in the United States for good -- and large enough to single-handedly supply nearly 75% of South Korea's total natural gas consumption.
3. Each LNG export terminal has a huge economic impact.
While Sabine Pass may keep the crown indefinitely as the largest LNG export terminal in the United States, the next wave of infrastructure includes a handful of big projects, all capable of supporting incredible economics. For instance, Sempra Energy (NYSE:SRE) plans to start-up the first 2.1 Bcf/d at its Cameron LNG project in 2019 (regulators have approved another 1.4 Bcf/d in expansions). The first leg of the facility will export an estimated $8.6 billion in LNG and another $2.2 billion in crude oil products and natural gas liquids. Per year. That doesn't even include benefits to the local and state economies from taxes and wages.
4. LNG is remarkably cheap.
Economics are driving the domestic industry's fast start. According to the U.S. Energy Information Administration, the average price of LNG exports in 2017 was $4.50 per million Btu. Considering the United States has trillions of cubic feet of natural gas available at less than $3 per million Btu, that could head even lower over time. That makes the product leaving the Lower 48 very competitive in international markets, especially in Asia, where spot prices routinely top double digits.
5. Asia can't get enough American LNG.
Asian countries such as Japan and South Korea are extremely energy poor, which means they have to import fossil fuels for nearly all of their energy requirements. Meanwhile, China has decided not to wait for its own natural gas supplies to ramp up before pivoting power generation away from coal. The result: 70% of global LNG cargoes are destined for the Asia-Pacific region. Japan, China, and South Korea are the top three importers in the world, and all are cozying up to LNG export project developers in a bid to force their hand when making final investment decisions. So far it's worked.
6. LNG has a surprising (and ironic) group of customers.
While China will remain a top importer of American LNG, last year it ranked behind Mexico, South Korea, and one surprising group of customers: the Middle East. It's not a fluke. Although Qatar is the second-largest exporter of LNG in the world and the Middle East is swimming in crude oil and natural gas, the region lacks the pipeline infrastructure needed to ship its own gas around. Growing domestic consumption has also exacerbated the problem, forcing Egypt, Jordan, Kuwait, Pakistan, Turkey, and the United Arab Emirates to import large volumes of energy from the United States. Believe it or not, it's the cheapest option, and that should be the case for the foreseeable future.
7. The global LNG shipping fleet is expanding dramatically.
Exporting gas requires that it be kept at 260 degrees Fahrenheit below zero. That requires special LNG tankers, which have become big business for certain shippers. The global carrier fleet will expand by a record volume in 2018, with 65 new vessels adding 360 million cubic feet of cargo capacity. That has yet to translate to meaningful gains from GasLog or Golar LNG, but perhaps it's still too early.
8. American LNG is pushing the Panama Canal to the breaking point.
Using the Panama Canal saves 7,900 miles from the trip around South America for ships moving between the Atlantic and Pacific oceans. But the man-made waterway was almost out of reach of American LNG cargoes before it was expanded in 2016 to accommodate larger cargo ships, including the largest tankers with supercooled containment vessels.
There's still a learning curve, however, and it could prove critical in the near future. That's because, until recently, only one LNG carrier could pass through each day. Now that figure has been bumped up to two, and should reach three ships by 2022. And that still may not be enough given expected growth of export terminals.
9. U.S. LNG: From worst to (almost) first.
Despite only starting in 2016, the United States is expected to become the third-largest LNG exporter in the world by 2020, ranking behind only Australia and Qatar. It might only take another decade or two before America finds itself atop the global leaderboard.
10. A mind-boggling number of projects are on the way.
Today there are only three operating LNG export terminals with a combined capacity of 3.8 Bcf/d, mostly from Cheniere Energy's Sabine Pass. But the numbers for what's coming in the near future are so large they're almost impossible to comprehend.
The U.S. Federal Energy Regulatory Commission has approved another nine LNG export terminals (including expansions), with a combined capacity of 14.9 Bcf/d. There are another 14 projects with a combined capacity of 25.4 Bcf/d under review. Add it up and the United States has 44.2 Bcf/d of LNG export capacity in operation, under construction, approved, or on regulators' desks.
That's equivalent to all natural gas consumption in the Middle East in 2015, or over 75% of China's or Europe's expected gas consumption in 2040, all from just 26 facilities. And investors can bet more are on the way.
This is one monster opportunity
In a span of just 17 years from 2005 to 2022, the United States will go from being the world's top energy importer to a net energy exporter. It won't stop ascending up the rankings anytime soon after that: Given the incredible volumes of cheap natural gas parked under the Lower 48 and an incredible amount of LNG export terminals expected to come online, this is one trend energy investors simply can't afford to pass up.