A cargo of chilled natural gas hauled from Louisiana in late December has become a symbol of how global trade is changing for a fuel increasingly seen as a cheap, cleaner-burning option for countries from Latin America to China and India.
The tanker Maran Gas Achilles passed through the Panama Canal and was headed toward Asia at a speed of 20 knots when, suddenly, it made a sharp U-turn in the Pacific. Next stop: Mexico's Manzanillo terminal on the southwest coast, where it unloaded.
The abrupt route change shows how the United States, which began shale gas exports just last year, is creating a new paradigm in an industry that once revolved almost entirely around long-term contracts with set destinations. As the new kid on the block, exporters of U.S. liquefied natural gas -- led by Cheniere Energy Inc. and Royal Dutch Shell SA -- are seeking the best price at any given time. As U.S. exports grow, it's a strategy that could shift the economics of the fuel toward an emerging spot market akin to oil.
"The U.S. puts gas into places on short notice at a good price," said Jason Feer, head of business intelligence at ship broker Poten & Partners Inc. "It's been flexible. The market's becoming more short term and the U.S. has been very effective at meeting those needs."
The U.S. stands to become the world's third-largest exporter by 2020, when it's expected to ship about 8.3 billion cubic feet per day of capacity, or 14 percent of the world's share, according to London-based consultant Energy Aspects Ltd. That growth is a testament to the power of the shale boom of the past decade, helping to reduce the country's reliance on foreign energy sources.
Drilling technologies such as hydraulic fracturing have made it profitable to tap vast resources of carbon fuels trapped in rock thousands of feet below the surface. The results: a natural gas supply glut stuck stubbornly in place since mid-2015, and billions of dollars redirected toward new export facilities by Cheniere, Dominion Resources Inc., Kinder Morgan Inc. and others.
Breanne Dougherty, a natural gas analyst for Societe Generale SA in New York, calls the U.S. push into the global liquefied natural gas market "an inarguable game changer."
Having gas delivery that isn't fixed by destination represents a new type of supply that will undoubtedly lead to more flexible contracts being signed elsewhere around the world, according to Dougherty. U.S. terminals made another key break from the global norm by pricing liquefied natural gas off the country's benchmark Henry Hub in Louisiana instead of tying it to the price of oil, she said.
Cheniere, which built the Sabine Pass terminal in Louisiana, was the first to ship shale gas abroad. The Houston company is now starting up its third plant and is expected to own 7 percent of the world's export capacity in 2020, according to Energy Aspects.
In its debut year, Cheniere shipped 56 cargoes to 17 countries, including Mexico, China, and India. Last week, it reported its first quarterly earnings gain since 2010.
"We continue to be pleasantly surprised by the speed and magnitude" of demand, said Anatol Feygin, Cheniere's chief commercial officer, during a conference call last week. "China and India underscored their potential to quickly increase LNG demand and tighten global markets."
Just a year ago, Cheniere was at CERAWeek by IHS Markit, the energy industry's yearly get-together in Houston, to talk about the introduction of its first tanker from Sabine Pass.
Feygin was scheduled to present at this year's meeting on Wednesday, a week after the company's announcement that it has secured its first deal to tap Canadian shale to supply its liquefied natural gas production, expanding its influence as one of North America's largest gas buyers.
Before the start of U.S. exports last year, Asia and Europe were seen as the likeliest customers. Gas production in Europe is declining as demand grows and, in some cases, countries have expressed a desire to displace pipeline imports from Russia, seeking to diversify their supply at a time of unsettled geopolitics, according to Dougherty of Societe Generale.
However, while analysts and traders watched whether Europe would emerge as a big buyer, Mexico, which already imports the most U.S. gas by pipeline, quickly became the largest importer of shipped-in liquefied natural gas from the United States, followed by Chile. China, South Korea and Japan boosted buying during the winter. Perhaps the most unexpected customers were in the Middle East, as Jordan, Egypt and the United Arab Emirates took in tankers in the backyard of the world's largest supplier, Qatar.
Dominion is expected to join the fray as a U.S. exporter by the end of this year, with its Cove Point terminal in Maryland raising the nation's export capability to about 3.2 billion cubic feet a day, according to Energy Aspects data.
For natural gas, it's "a new world order" that not only promises to establish the U.S. as the swing provider, but also allows emerging countries to take advantage of low prices, said Ted Michael, an analyst with Genscape Inc.
Business on 03/09/2017