November marked a major breakthrough in the U.S. domestic natural gas industry. According to U.S. Global Platts, the nation became a net natural gas exporter for the first time in over 60 years, exporting an average of 7.4 billion cubic feet per day (Bcf/d) in November, 0.4 Bcf/d less than it imported.
With U.S. natural gas production surpassing domestic demand for the first time in decades, U.S. energy producers and export terminals are preparing to take advantage of the momentous opportunities opening up in the natural gas industry.
U.S. Natural Gas Moves from Net Import to Net Export in One Decade
Improvements in horizontal drilling and hydraulic fracturing have brought U.S. natural gas production to historic levels at an unprecedented pace. Just 13 years ago, the National Petroleum Council predicted U.S. natural gas resources were in trouble. The nation was headed toward ever-increasing reliance on overseas imports, even with the continued use of coal to supply the nation’s power.
Once the largest energy importer on the planet, the shale revolution of the last decade has positioned the U.S. to become the world’s chief natural gas exporter.
Net imports of crude oil and petroleum products fell from 60% in 2005 to 24% of U.S. total petroleum consumption in 2015, the lowest level since 1970. Within just the last few years, the shale revolution has persuaded the U.S. government to lift a 40-year crude oil export ban and flip our multibillion-dollar coastal natural gas import facilities into export facilities.
Cheniere Energy Becomes First American Shale Natural Gas Exporter
A number of companies have already decided to capitalize on this opportunity, namely Cheniere Energy. By 2016, the small Houston-based offshore exploration company was equipped to export 500 million cubic feet of gas a day.
In February 2016, Cheniere Energy became first American exporter of shale natural gas. By October 2016, regulators gave Cheniere the go-ahead to load cargo from a Sabine Pass facility, and by November 2016, Sabine Pass had exported 40 shipments, approximately 6.5 million cubic meters of liquefied natural gas (LNG). Ship-tracking data compiled by Bloomberg and Genscape Inc. released in November 2016 estimates the U.S. will export a historical record of natural gas shipments by January 1, 2017.
According to the Wall Street Journal, Cheniere is continuing to expand Sabine Pass and several other export terminals are expected to come online in 2017 and 2018. The Quintana Island, Texas Freeport LNG terminal expects to start exporting gas in 2018, and the Chesapeake Bay Dominion Resources terminal plans to begin exporting LNG to Japan and India next year.
U.S. Natural Gas Production Projected to Increase with Domestic and Export Demands
Even with a 70% drop in active natural gas drilling rigs over the past five years, U.S. natural gas production still beats domestic demand. In June of this year, natural gas production averaged 77.5 Bcf/d. That is 2.7 Bcf/d lower than February’s record high for daily average production. EIA predicts a 3% increase in U.S. natural gas production through 2017 due to export increases and use in the power sector. Gross exports are predicted to rise to an average of 0.5 Bcf/d in 2016 after exports from Cheniere’s Sabine Pass facility. EIA expects gross natural gas exports to average 1.5 Bcf/d in 2017.
Though natural gas inventories are currently above average, up 8% from last year’s inventories, 2015’s warm winter kept inventories at record highs. Cold weather this winter could tip the U.S. back into net import as the power sector uses our supplies.
If natural gas prices rise, coal use could increase, bringing the electricity sector’s natural gas use down in 2017. But the EIA estimates that chemical projects in the industrial sector could neutralize this drop in natural gas consumption by increasing their use of natural gas an equal amount.
Total U.S. natural gas consumption averaged 75.2 Bcf/d in 2015. The U.S. Energy Information Administration (EIA) projects total natural gas consumption will average 76.4 Bcf/d in 2016 and 77.1 Bcf/d in 2017, with use of natural gas in power generation expected to grow by 5.4%.
U.S. Producers Must Meet Demand Growth and Embrace Opportunity
The U.S. Department of Energy predicts the U.S. will be the world’s third-largest producer of liquefied natural gas for export by the year 2020, after Australia and Qatar. If policymakers and energy industry experts capitalize on this opportunity, the U.S. could experience unprecedented growth in demand for natural gas, as much as 25 billion cubic feet per day by 2020.
If the U.S. becoming a net natural gas exporter for the first time in over 60 years has made one thing clear, it is that now is the time for U.S. energy to embrace opportunity and move forward technologically. The future is here, and natural gas producers are looking at a massive, rapid increase in asset values and endless opportunity. The industry simply has to demonstrate that it can handle the skyrocketing growth in demand.