The US gas journey, from rigs to riches

The recent Ukraine-Russia flare-up adds potency to US claims its gas is a safer, cheaper bet than Gazprom's. But as the Kremlin adjusts to meet new gas demands, the US gas revolution could be far from plain sailing.

Energy experts predicted in 2005 that the US would be forced to import 25 percent of its gas within the coming decade. The country's subsequent shale gas revolution blew that notion out of the water. Today the US is in fact a net gas exporter and could be standing on the brink of a major recalibration of global energy markets. 

Business | 11.09.2018

"What seemed impossible a few years ago is now true: The US is now competing with the Middle East in the global gas export market," Jack Belcher, Executive Vice President of HBW Resources, told DW.

But it is perhaps Moscow and Beijing that have more skin in this particular game, the former as producer, the latter as buyer. China's reluctance to buy US LNG can't be ignored as US President Donald Trump's tariffs kick in, while Moscow is cranking up its own LNG production, much of which may be sold to ... yep, you guessed it: China. 

Read moreUS sees gas exports to Germany by 2022

The US gas revolution

The US Energy Information Administration projects US gas production to grow at nearly twice the rate of domestic demand over the next decade, leaving a huge surplus for export. 

"The US is becoming one of the world's major powers in LNG and it already does and will have important consequences for the world market and politics," Anna Mikulska from Rice University in Texas told DW. 

Read more: Pipeline wars: Frontline in the fight against climate change

This global demand for liquefied natural gas, LNG — a form of gas cooled to be transported in liquid form — is growing 4-6 percent a year. LNG accounts for only 12 percent of all global gas demand but it's the fastest growing method of trading gas.

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Ukraine fears the Nord Stream Pipeline

The US currently has two liquefaction plants in operation, Sabine Pass and Cove Point, with a shared capacity of 23.3 mtpa (metric tons per annum). Total exports this year will be around 20 mtpa. The country is launching nine LNG export projects with a collective liquefaction capacity of 36.7 mtpa, boosting capacity to 63 mtpa and in a "second wave," federal regulators are set to decide on another 13 pending projects by the end of 2019.

"I expect US production to be around 40 mtpa in 2019. One more train is scheduled to start up in 2020 and one in 2022, which will take total capacity to 71.2 mtpa, which will put the USA in third place after Australia and Qatar in terms of total capacity in operation," Andy Flower, a consultant specializing in the LNG business, told DW. 

Political leverage, or old fashioned marginal cost? 

At the same time, the US is embroiling itself in trade wars, pushing some countries like Poland and Germany to consider buying more US LNG to appease Trump in bilateral trade talks. 

"New LNG providers and the US in particular are a new quality in a natural gas market ruled historically by mostly state-owned enterprises of Russia or Qatar, which meant that gas could lend itself quite easily as a geopolitical tool," Mikulska believes. 

Read more: Germany warms to plan for liquefied natural gas terminal

"US LNG has geopolitical consequences, because as it decreases the geopolitical power of historically strong natural gas players, the historical powers will have to adjust to more competitive market and won't be able to use natural gas supply to support their foreign policy as easily as they could do this before," Mikulska said.

LNG accounts for only 12 percent of all global gas demand but it's the fastest growing method of trading gas.

US LNG transactions tend to be characterized by greater flexibility than traditional ones. Since 2008, the average LNG contract term globally has dropped from almost 20 years to less than five.

"We see many more short-term and spot transactions as opposed to traditional long-term ones typical for pipeline natural gas delivery. In 2000, 5 percent of all LNG sales were on a short-term or spot basis and that number surpassed 30 percent in 2017," Mikulska said. 

Mikulska believes the US is and will increasingly be responsible for intensification of these trends, because it will provide most of the growth in LNG production. 

The story in Russia

Russia emerged this year as a major player in the LNG market and as a beneficiary of US actions.US sanctions on Iran and its trade spat with China have pushed Beijing into increasing imports of Russian oil and LNG. Russia operates two LNG export facilities, including the recently commissioned Yamal LNG project in the Russian Arctic.

Yamal LNG has doubled Russian LNG output to just over 20 mtpa, making the country the fifth-largest LNG exporter in the world. The project concluded its first ship-to-ship cargo transfer (the transfer of cargo between seagoing ships positioned alongside each other) in Norway last week. Amid the changes in the global crude market, Russian companies presented the best alternative choice for China, Li Li, director of research at Shanghai-based research and consulting firm ICIS China, said.

"Russian oil has the best prices and best availability," Li told The Global Times.

Chinese demand

China is the world's second largest LNG importer (behind Japan) and is set be the major driver of LNG import growth over the next five to 10 years. Beijing imposed a 10 percent tariff on US LNG in September after the US slapped tariffs on $200 billion (€177 billion) of Chinese goods.

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China's LNG demand grew by a record 8 mtpa in 2017 and is set to expand by another record 12 mtpa this year, making up 50 percent of all global LNG demand growth, energy consultancy Wood Mackenzie said. This comes as Beijing pushes ahead with plans to offset coal usage to curb air pollution. Beijing wants natural gas to make up at least 10 percent of its power generation energy mix by 2020. 

Read more: China's CNPC takes over Total's share in Iran gas project

As the so-called second wave of US LNG development unfolds, some of its projects will likely not reach the final investment decision (FID) needed to go forward unless they can secure Chinese funding or Chinese long-term off-take agreements. 

In the short term in 2019, China can easily ignore the US LNG market because Russia is preparing to pump more natural gas to Asia through the new Power of Siberia pipeline. In the long term, China may need to turn to Qatar or opt for more Russian natural gas. Beijing is also interested in becoming a major investor in Russian LNG projects, including Novatek's massive 19.8 mtpa Arctic LNG 2 project in northern Siberia, which comes onstream in 2023. 

Pipelines in the crosshairs

Dirty oil

A protester's hands covered in crude oil during a 2011 protest against Royal Dutch Shell after pipeline spills in Nigeria, in 2008 and 2009. Shell allegedly ignored advice to replace the outdated Trans Niger Pipeline, which ruptured and inundated villages in Ogoniland with thousands of barrels of oil. Anti-pipeline movements have been around for decades, and are joining up across the globe.

Pipelines in the crosshairs

Local resistance

Militants from the Movement for the Emancipation of the Niger Delta (MEND) patrol the oil-rich creeks of the Niger Delta of Nigeria in September 2008. MEND militants were alleged to have sabotaged and destroyed crude oil pipelines run by the likes of Shell and Chevron, which they say bring little benefit to local communities and cause massive local environmental destruction.

Pipelines in the crosshairs

Peru protests

Police stand guard at the entrance of Peru's national oil company in Lima, August 2016, where activists placed a coffin filled with items painted in black to represent a contaminated environment. The state oil company Petroperu has admitted to numerous spills in the old and extensive pipeline system that transports oil from the Amazon to the Pacific coast.

Pipelines in the crosshairs

Mexican rebellion

TransCanada's Tamazunchale Pipeline met with resistance in Mexico during its construction through the country's mountainous and fertile southern region. Several Mexican indigenous communities have joined forces to fight the pipeline. The wall painting here reads: "No to the gas pipeline, we're an indigenous community and demand respect."

Pipelines in the crosshairs

Standing Rock

Opponents of the Dakota Access oil pipeline march out of their main camp in North Dakota in February 2017. The anti-pipeline resistance movement that gathered on Standing Rock Sioux tribal lands became a social media phenomenon under the #NoDAPL hashtag, galvanizing global resistance against attempts to expand the flow of climate change-inducing fossil fuels.

Pipelines in the crosshairs

A movement lives on

A Native American woman recovers after being pepper-sprayed by police after she and other protesters sought to build a new camp to block construction of the Dakota Access Pipeline in late 2016. While the #NoDAPL movement did not succeed in preventing the pipeline from being built, it focused attention on the topic and drew together social justice and environmental movements.

Pipelines in the crosshairs

Trans Mountain Pipeline

More than 10,000 people march in British Columbia in March 2018 to protest Kinder Morgan's Trans Mountain pipeline, which is to transport tar sands oil to the west coast of Canada and on to Asian markets. After months of protests led by First Nations and environmental activists, the pipeline company halted construction in April.

Pipelines in the crosshairs

Keystone XL

Lakota spiritual leader Chief Arvol Looking Horse demonstrates outside the White House in 2015 against the proposed Keystone XL pipeline, which would run from Canada to the Gulf of Mexico. US Republicans authorized the pipeline — but in November 2018, a court again blocked its construction.

Pipelines in the crosshairs

Trans Adriatic Pipeline

In March 2017, after Italy's State Council permitted construction of Trans Adriatic Pipeline (TAP), demonstrators in Puglia southern Italy clashed with police to protest removal of 1,600 centuries-old olive trees. Several were injured. A 350.org petition claims TAP will "destroy Europe's climate targets" and has "destructive, unjust impacts on the communities in its path."

Pipelines in the crosshairs

Turkmenistan-Afghanistan-Pakistan-India

The TAPI (Turkmenistan-Afghanistan-Pakistan-India) gas pipeline project was launched in Herat in western Afghanistan in February 2018, and will carry gas from Turkmenistan to the subcontinent. On hand at the launch were a group of Taliban militants (pictured) insisting they would not sabotage — as many feared — but instead assist the pipeline project.

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