With the first facility coming online just 31 months ago, the U.S. now stands at the beginning of a tremendous chance to flourish in the rapidly expanding liquefied natural gas (LNG) export business. Our capacity to export LNG is set to boom from ~3.5 Bcf/d today (about 4% of total U.S. gas production) to 10-12 Bcf/d by 2021, which is nearly 30% of the current global market. With U.S. gas production continuing to increase to all-time records, and a tripling of our export terminals to six by the end of next year, the International Energy Agency reports that we have the potential to pass Qatar and Australia to become the world’s largest exporter of LNG within five to seven years.
From an economic, environmental, and security perspective the importance of this achievement can't be overstated. Yes indeed, environmental groups themselves should be supporting LNG exports because gas is the world's go-to source of energy to lower CO2 emissions and also backup intermittent wind and solar. We have the unique ability to export energy and influence global geopolitics, most importantly by buffering the influence of gas giants Russia and Iran.
Yet unfortunately, the now worsening trade war and recent announcement that the Trump administration is raising tariffs on an additional $200 billion worth of Chinese goods, is throwing a giant monkey wrench into all of this, potentially weakening support for export infrastructure investments. "Trade War Threatens Construction of Up to 20 LNG Terminals."
In retaliation, China has decided to hit U.S. LNG with a 10% tariff starting September 24. This is less than the previously proposed 25% tariff but still a problem for the prospects of the coming "second wave" of U.S. liquefaction plants along the Gulf Coast. These projects are now trying to secure financing to move to a positive final investment decision, seeking to start-up exports in the early- to mid-2020s. "U.S. Gas Still a No-Go for Chinese Buyers Despite Weaker Tariff."
The administration must know that LNG export terminals are lengthy, highly complex, and multi-billion dollar decisions that require major financing. As such, the uncertainty that we are now creating in this game of chicken with China is quite destructive. We are needlessly putting ourselves at risk of losing tens of billions of dollars in energy trade with the world's largest incremental consumer of both oil and gas.
Any anti-export position hampers our own gas production because exports incentivize new energy development here at home. The most important U.S. sector for natural gas, electricity generation, has faced flat domestic demand for the past decade. A lack of foreign outlets could shut-in domestic gas production: "Thank Goodness for U.S. Natural Gas Exports." Most of the global increase of 5-6% per year in the next 20 years will occur in Asia, with more gas at the center of China's "Five-year Plans" to not just bring continued economic expansion but also a cleaner environment. The goal is to reduce the over reliance on coal as an energy source and use more natural gas to lower emissions and clear hazy city skies.
Self-inflicted or not, any stumble on the U.S. part to export LNG to China will simply help other sellers of both LNG and piped gas. Over time, Canada, Mozambique, and Iran would greatly benefit, but our mistake would give immediate assistance to current heavyweights Russia, Qatar, and Australia. Already holding a whopping 860 trillion cubic feet of proven natural gas (nearly three times the U.S. level) and supplying over 20% of China's LNG, leading LNG exporter Qatar has announced plans to expand domestic LNG production 30% from 2017 to 2022. Now responsible for 20-25% of global gas exports, Russia realizes the unmatched opportunities that lie ahead in the LNG market and is hedging by building "the world's longest" pipelines to supply neighboring China. Well-resourced Australia, having every bit the technical and engineering prowess that we do, stands ready to capitalize as well and already meets almost half of China's LNG demand.
The U.S.-China trade tensions are creating an opportunity for all of these exporting nations to foster their relationship with all-important China. As seen below, we already know that their gas production will only continue to rise. And most critically, we must always remember that Qatari and Russian energy companies in particular really face no boundaries in terms of how much they are backed - politically and financially - by their governments to dominate global energy markets.
Right now, we are a small but growing part of China's natural gas import portfolio. Although China has accounted for 15% of U.S. LNG shipments, this is about double the market share we hold for China's LNG imports. Yet, especially with future domestic shale gas production sputtering, our potential in this market is massive. Looking out to just 2030, about 65% of China's gas demand could need to be met by imports.
Particularly for energy, the trade war disrupts American business. China is naturally interested in U.S. LNG. We are a stable democracy with predictable laws and protections and enjoy an energy sector run by the most advanced companies in the world. Not just helping to expand the growing LNG spot market, reliability of long-term U.S. contracts and its stability as an energy producer make us very attractive for China. We sell LNG on a destination-free basis, adding a crucial flexibility for buyers that has been missing since the market's inception.
And investors very much hope that trade policy decisions will support this burgeoning U.S-China energy trade business. It's a natural win for both countries, the largest oil and gas producer supplying the largest new user. As seen below, China’s own LNG demand is set to surge, a "black hole" of consumption.
President Trump, we simply can't afford to miss this opportunity.
