Earlier this year, the U.S. shipped its first commercial cargo of liquefied natural gas from the lower 48 states, announcing to the rest of the world that American LNG exports have arrived once and for all. Although this development has intensified a supply glut that has led to lower prices for buyers, the market is already beginning to show signs of rebalancing.
Global demand for natural gas is predicted to grow by 50 percent, some 60 trillion cubic feet, between 2014 and 2040, and as a result analysts have begun to predict that a “supply-demand gap” may emerge as soon as the early 2020s. Sanford C. Bernstein & Co. in fact recently estimated that by 2025 the market could see a deficit of as much as 3.9 trillion Tcf per year.
As the market begins to stabilize, and as international LNG developers continue to assess the financial viability of their proposed projects, many believe that there will be a sizable opportunity for the domestic industry in the medium and long term.
First of all, U.S. LNG comes with a guarantee of reliability that is attractive for potential buyers. At present, certain countries, particularly those in Europe, depend on energy suppliers that use energy as a political tool
, threatening to cut off supplies as an extension of their geopolitical goals. In contrast, U.S. LNG represents a more secure and dependable alternative for our allies.
Indeed, with European LNG imports projected to roughly double between 2014 and 2020, American natural gas could be critical to securing the continent’s energy future. Currently, Europe primarily imports LNG from Qatar, Algeria, and Nigeria, but each faces challenges in meeting growing demand: Qatar has reigned in its domestic expansion efforts, while Algeria and Nigeria are both limited by their ability to attract new investment and have seen export volumes decline in recent years.
Second, in contrast to many of the international terminals that have been proposed, the majority of leading U.S. projects are located on brownfield sites, which already have much of the necessary infrastructure in place, including storage tanks, pipelines and roads. As a result, converting an existing LNG import terminal to serve as an export facility should cost substantially less than building a new plant.
Indeed, industry believes that LNG infrastructure can be built “much more cheaply (in the U.S.) than anywhere else” — potentially for up to a third less. These are big numbers in any day and age, but particularly so in today’s capital constrained market.
But even though U.S. LNG holds several intrinsic advantages, regulatory hurdles that interfere with the ability of project developers to enter the global LNG market and challenge international competitors exist. For example, the first six U.S. projects approved took an average of 2.6 years to complete the federal permitting process, hampering their commercial development.
There is a clear opportunity to streamline this process by imposing a specific timeframe on the Department of Energy to reach a decision on whether a project is in the national interest, once it has completed its environmental review. Doing so will provide domestic developers with confidence in the regulatory process and allow them to more quickly challenge international competitors.
Recognizing the challenges of the current regulatory regime, comprehensive energy bills that contain provisions to expedite the regulatory approval process have been passed by both the House and Senate with bipartisan support. It is crucial that both chambers now work together to quickly develop a reconciled piece of legislation that the President can sign into law.
Decisive action to address the regulatory logjam will be an essential step in realizing the nascent domestic LNG industry and, at the same time, it will deliver numerous environmental and geopolitical benefits. The opportunity is real, unique and here now. We must take advantage of it.
Charlie Riedl is executive director of the Center for Liquefied Natural Gas. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
