Demand for U.S. natural gas for liquefied natural gas (LNG) production for export is poised for its first decline since the country began exporting the super-chilled fuel from the lower 48 states, it eight years ago.
The United States is the world’s largest exporter of super-refrigerated gas and one of the main gas suppliers to Europe after Russia’s invasion of Ukraine. Natural gas prices remained relatively high in Europe as planned US production growth for 2024 failed to materialize and the continent braces for another gas price shock as stocks run out due to colder winter temperatures.
Natural gas drillers have benefited from strong demand from LNG export plants, particularly since sanctions on Russian gas have boosted European demand for U.S. LNG. Producers have indexed part of their production to global LNG prices, so slowing gas flows to LNG export plants provides less incentive for them to increase production.
Since 2016, when Cheniere Energy’s Sabine Pass export plant in Louisiana shipped its first cargo, plant feed gas has increased every year, even in 2020 when shutdowns during the COVID-19 pandemic 19 reduced energy demand.
Outages at LNG plants and delays in building new plants have reduced demand so far this year, according to LSEG data.
With 11 days to go until the end of 2024, the amount of gas shipped to the eight major U.S. LNG export plants has declined to an average of 13.0 billion cubic feet per day (bcfd), down from a average of 13.1 bcfd in 2023, according to LSEG data.
One billion cubic feet of gas can power about 5 million American homes for a day.
The annual decline in demand is expected even as the first new LNG export facility since 2022, Venture Global LNG’s Plaquemines export plant in Louisiana, with a capacity of 2.6 billion cubic feet per day, started producing LNG during the past week.
The industry, however, expects this year’s drop to be just a blip, with U.S. LNG capacity expected to more than double over the next four years. The commissioning of new plants is expected to increase capacity from about 13.8 billion cubic feet per day to 17.8 billion cubic feet per day next year, 20.3 billion cubic feet per day in 2026, 22.0 billion cubic feet per day in 2027 and 24.2 billion cubic feet per day in 2028.
PRODUCTION STOPS
Numerous outages at Texas’ 2.1 billion cubic feet per day Freeport LNG plant were a major factor in falling demand for LNG feedgas this year . At least one of the plant’s three liquefaction trains was shut down every month in 2024 except October, and some of those shutdowns lasted several weeks, according to LSEG data.
Freeport LNG is the second-largest U.S. LNG producer, but Venture Global’s Plaquemines will likely move into second place once it is fully operational.
Several large LNG projects under construction on the U.S. Gulf Coast have experienced cost overruns due to labor shortages and supply chain difficulties.
Venture Global’s Plaquemines project went over budget by $2.3 billion, although it remained on schedule. The 2.4 billion cubic foot Golden Pass plant in Texas, owned by Exxon Mobil and QatarEnergy, is more than $2 billion over budget and behind schedule.
Golden Pass was scheduled to begin producing its first LNG in 2024, but that date was pushed back to late 2025 after its main contractor, Zachry Holdings, filed for bankruptcy.
Feedgas supplies to U.S. export facilities are forecast to increase by an average of about 2 billion cubic feet per day next year, representing a significant increase, said Alex Munton, director of global gas and LNG research at consultancy Rapidan Energy Group.
“We see only limited downside given the tight global market conditions, with performance issues at Freeport the main risk,” Mr Munton told Reuters.
The decline is mainly because the United States is between generations of LNG construction, said Ira Joseph, an LNG market expert and senior fellow at Columbia University’s Center on Global Energy Policy.
“We are optimistic about U.S. LNG and generally about natural gas demand growth, which is expected to be strong over the next five years,” Mr. Joseph said.
Despite declining feedgas supplies for LNG, U.S. LNG exports are expected to increase slightly this year compared to 2023 due to improved efficiency.
LNG exports are expected to grow 1% in 2024 after jumping 12% in 2023 and an average of 43% each year over the previous five years (2018-2022), according to the latest short-term energy outlook from the US Energy Information Administration (EIA).
Faster growth is expected to resume next year when new projects begin. Gains could increase by about 14% to an estimated 13.7 billion cubic feet per day in 2025, according to the EIA.
