American LNG Powers the World

Dustin Meyer
Posted August 15, 2019

By now, the advantages of the American energy revolution are familiar. Soaring production in U.S. shale plays is delivering abundant, affordable and clean natural gas, which is increasingly displacing coal in our energy mix. Today, domestic emissions are at their lowest levels in over 25 years, due in no small part to fuel switching and low-cost natural gas.

While these trends have benefited Americans for more than a decade, an equally exciting story is emerging abroad. Growing exports of U.S. liquefied natural gas (LNG) are spreading these economic and environmental advantages to our allies across the globe.

Following our first foreign shipments in 2016, the U.S. has rapidly become an LNG powerhouse. We are now the world’s third largest exporter, shipping nearly 40 cargoes per month to more than 35 countries. This is terrific news for Americans because studies show that the growth of LNG exports is a strategic asset to the domestic economy, with the potential to generate nearly 452,000 American jobs and add up to $74 billion annually to the U.S. GDP by 2035.

Yes, global LNG demand is rising significantly. At the same time, the growth of the U.S. export capacity, and the arrival of other natural gas projects abroad, has delivered an abundance of LNG to the market. This larger supply has meant lower prices.

Over the past few months, natural gas prices in key global markets have been plummeting. In Asia, spot LNG prices have fallen to less than $5 per million British thermal units (MMBTU), marking their lowest levels in more than 10 years. Past prices were not only volatile, but much higher – routinely rising above $12/MMBTU and even peaking at $20/MMBTU.

Similarly dramatic reductions have occurred in Europe, where cargoes have been trading below $3.40/MMBTU in recent weeks. As with the Asian market, this is far below average relative to prior years, when prices floated between $7-9/MMBTU. In both instances, declining prices can be directly linked to the abundance of U.S. LNG available to importers.

The impact of American LNG on European markets is especially apparent. So far in 2019, nearly 40% of U.S. cargoes have landed in Europe – a sharp uptick that has corresponded with the declining prices.

Importantly, the affordability of natural gas is complementing Europe’s efforts to reduce emissions. The lower prices – coupled with rising carbon taxes – are shifting the economics of power generation to incentivize coal-to-natural gas switching.

Halfway into 2019, the results are already impressive. Across the European Union, coal-fired power generation has declined 19%, with significant coal-to-natural gas switching evident in Germany, Italy, Spain and France, among others.

Unsurprisingly, the latter three countries are importers of U.S. LNG, while Germany – which currently doesn’t have LNG import capacity – is swiftly advancing plans to commission its first terminal in the early 2020s.

Similar stories are appearing around the globe as natural gas is increasingly essential to meeting the dual challenge of energy and environmental progress. In China, natural gas demand is skyrocketing due to fuel switching in the residential sector – a trend that has produced a 78% improvement in Beijing’s winter air quality during the past five years. In Mexico, natural gas is displacing energy generation from fuel oil in the power sector. And, competitive prices have made LNG a valuable energy resource in emerging Asian markets, like Pakistan and Bangladesh, both of which suffer from acute energy shortages.

Fortunately, this exciting story is still in its early stages. In May, U.S. LNG exports reached a new peak of 4.7 billion cubic feet per day, and are expected to increase by more than 60% this year alone. By 2025, the U.S. is projected to be the largest LNG exporter in the world, enabling America to supply the globe with energy well into the future.

For years, natural gas has been an indispensable feature of our homegrown energy renaissance, especially as a cheaper and cleaner alternative for generating electricity. And now, thanks to U.S. LNG, our trading partners can also realize the economic and environmental rewards of natural gas, helping us all more sustainably power the world.