Energy issues are becoming increasingly important in the industrial development of each country, especially as traditional energy supplies become more and more limited.
Last year, the US rose again to become the world's largest exporter of liquefied natural gas (LNG), with export volumes surpassing the two leading suppliers, Australia and Qatar. It's hard to believe that just over a decade ago, the US was forecasted to face a severe LNG supply shortage.
On the occasion of the US announcing a temporary suspension of LNG export licenses to countries without an FTA with Washington, leaving most European countries in dire straits... Viet Hustler recounts the miraculous story of the US's journey to dominate the global LNG market in recent years.
Pioneering the natural gas liquefaction process
The US is not a 'newly emerging' LNG exporting country as we might think recently... In fact, the US is the pioneering giant in the field of gas liquefaction and commercialization of LNG on an international scale more than 60 years ago.
The first LNG export shipment from the Louisiana port to the UK in 1959: about 2,000 tons of LNG was transported on the ship Methane Pioneer.
In fact, the US was the first country to liquefy natural gas to -256F on a large scale in 1918.
Liquefying gas reduces the volume of natural gas by nearly 600 times: making international transportation and storage much easier.
This process was initially aimed at extracting Helium for World War I, used in British gas-powered airships.
Demand for LNG in the world war and industry surged. Japan soon became the largest LNG importing country at that time.
Before importing US LNG, Japan was an island with very little natural gas reserves.
Tokyo Gas at that time had to convert coal into gas: an extremely costly and inefficient process.
In 1946, Hiroshi Anzai (photo below) became director of Tokyo Gas; he decided to import LNG entirely from the US due to cost advantages.
The LNG export industry in the US at that time was just beginning to boom: the Kenai LNG plant (in Alaska) was built initially to serve orders from Japan.
However, after Kenai LNG came into operation, countries in Asia, the Middle East, UAE, Qatar, and Australia... rose to become new LNG suppliers with affordable prices (and lower shipping costs to Japan).
US LNG export growth stalled from here....
Not stopping there, increasing energy demand in the US led to a prolonged energy deficit period of 1.5 decades: 2000s-2014.
From a pioneering LNG exporting country, the US became a net importer of this commodity.
Even in 2004, Deutsche Bank predicted The US would surpass Japan to become the world's top LNG importer by 2015.
So how did the US regain its position as the world's largest LNG supplier?
It was thanks to aggressively advancing extraction technology development: something in which the US has always been the pioneer!
"The shale revolution": redrawing the energy map of the US and the world
Massive oil and gas reserves and the extraction challenge
The shale gas challenge:
Global shale oil reserves are about 345 billion barrels, shale gas reserves are about 206,000 billion cubic meters.
However, extracting large amounts of shale resources with high commercial benefits (low costs) is not easy!
FYI: China has nearly double the shale gas reserves of the US but to this day still struggles with how to extract it efficiently.
To become an LNG powerhouse, the US created a shale extraction technology revolution with 2 methods:
hydraulic fracturing: hydraulic fracturing: cracking rock with high-pressure fluid (hydraulic fracturing).
horizontal drilling: horizontal drilling
… to access thin shale layers deep underground at low cost and high efficiency.
The Eagle Ford region, which previously only produced 50,000 barrels in 2011, has surged to 1.4 million barrels of tight oil/day:
Texas's tight crude oil and tight gas production has increased from 1.3 million to over 3 million barrels/day today.
This production from the state of Texas alone has surpassed Iraq's crude oil production - a country famous for oil production.
Natural gas production surges, US no longer dependent on foreign LNG supply
From 2007-2014, US shale gas production increased by an average of +50% per year, equivalent to increasing the world's total natural gas market share from 5% to 36%:
This also helped US GDP grow by an average of 4% per year (~ +690 billion USD).
Some US LNG import terminals were immediately "abandoned".
The technological revolution hydraulic fracturing helping the US export a record number - over 283 million m3 of natural gas/day ~ 1/10 of production.
Fun fact: The transformation story of Cheniere
Previously, Cheniere was founded in the 1990s to exploit oil and gas, but then shifted to developing LNG import terminals in the early 2000s.
Charif Souki, former CEO of Cheniere Energy, once made a wrong bet that the US would need to import a lot of LNG.
At that time, Souki actively scoured the Gulf Coast to find major LNG shipping ports and paid attention to three locations: including Freeport, which was put into groundbreaking construction
After the shale revolution, Souki's LNG import plants were almost inactive.
However, because it was in the early stage of a failed strategy, Smith was able to reverse direction in time and bet on the idea that the US has enough natural gas to become an LNG exporter.
Currently, Cheniere Energy has become the largest LNG exporter in the US.
The US's important LNG import partners
1. Japan: the "energy-hungry" country, the world's largest LNG importer
13 years ago, a 9 Richter scale earthquake so strong it shifted the Earth's axis devastated eastern Japan, causing a serious nuclear disaster in Fukushima province.
Radioactive material began leaking into the atmosphere and the Pacific Ocean.
Immediately after, Japan had to shut down all 54 nuclear reactors.
Without the reactors, Japan had to rely more on LNG for electricity production.
In 2012-2014, about 1/3 of the US's total long-term LNG contracts came from Japanese importers.
Japan gradually became the main customer in projects from Cove Point, Maryland to Freeport, Texas.
Seizing this opportunity, Cheniere and other LNG suppliers quickly switched to the LNG supply model.
Compared to traditional suppliers like Qatar or Malaysia, LNG transactions from the US are more flexible:
LNG is sold at the port, allowing buyers to come and take it anywhere they want → Optimizing transportation according to market demand.
LNG price based on Henry Hub, a natural gas exchange in the US, instead of crude oil price → More flexible pricing structure.
Lower penalties for canceling shipments.
The Sabine Pass LNG plant shipped its first LNG cargo in early 2016.
2. China: steadily buying natural gas (2014-2020)
China's LNG demand grew rapidly during the 2014-2020 period due to concerns about energy shortages.
Long-term LNG contracts from Chinese buyers are attractive deals due to stable prices compared to the spot market…
… especially during times when natural gas prices reached all-time highs after the Russia-Ukraine war.
PetroChina signed an agreement with Cheniere, the first LNG deal between the US and China in 2018.
Although the 2018 US-China trade war disrupted trade for a while, China still increased LNG imports from the US due to domestic fuel shortages + relatively competitive prices compared to Qatar and Australia.
A series of LNG projects in Canada and Mozambique were delayed at that time, further prompting Chinese importers to seek long-term supplies.
3. US dethrones Russia in the European market
The origin of the energy crisis in Europe
Early 2021, the European energy crisis had already begun:
natural gas prices surged 5 times after Russian energy giant Gazprom stopped transporting gas through Ukraine.
Rising prices made profits from exporting LNG to Europe quickly exceed those to the Asian market.
In December 2021, at least 10 US LNG cargoes en route to Asia immediately diverted to Europe.
Russia-Ukraine war officially breaks out
After the Russia-Ukraine war began in February 2022, the energy crisis already enveloping Europe became even more intense.
Cheap gas from Russia, which previously met about 1/3 of Europe's demand, nearly depleted overnight.
While major LNG exporters like Australia and Qatar could not quickly ramp up exports to Europe, the US immediately signed long-term LNG supply agreements.
EU LNG imports increased by about 60% in 2022.
Nord Stream pipeline explosion: boosts demand for US LNG
In September 2022, the Nord Stream 1 and 2 gas pipelines exploded for unknown reasons, further sharply reducing Russian pipeline gas flows to Europe.
Nord Stream is a pair of offshore natural gas pipelines in Europe running from Russia to Germany operated by Russia's Gazprom.
US accused of being behind the explosion:
Seymour Hersh, American investigative journalist, citing reliable sources that explosives were placed by the US Navy at the pipelines in June 2022 under the cover of NATO's BALTOPS 22 exercise. Three months later, the explosives were remotely detonated.
Immediately, the White House said Hersh's report was "completely false and utterly fabricated".
Although to this day it is still unknown who was behind this shocking explosion, but in a very short time, the US officially dethroned Russia to become Europe's top gas supplier.
The US increased its share of Europe's imports from 43% in 2022 to 47% in 2023, becoming the top LNG supplier to the continent.
US LNG exports to Europe surged in 2023.
This also helped Europe reduce dependence on Russian supplies and avoid severe gas shortages in 2022 and 2023.
The US officially becomes the world's largest LNG exporter
US LNG exports have continuously increased year after year, and by 2021 were on par with Australia and Qatar - the two leading exporting countries.
Not stopping there, export volumes are expected to double this decade, making the US the “LNG kingpin”…
especially as natural gas demand continues to rise in Asia and Europe.
LNG is currently the mainstay export commodity bringing in huge revenues for US energy companies: ~$27 billion in 2021.
Update on the current LNG export situation
US delays exports due to climate impact
On 01/26, the Biden administration suddenly announced a pause on approving LNG exports to countries without FTAs with Washington (including Japan and the EU)…
…. to analyze impacts on climate change, the economy, and national security.
This announcement may not affect near-term LNG supplies, but will slow growth rates in the late 2020s and early 2030s.
Japan begins seeking other suppliers to ensure energy supplies.
Energy companies at COP28 committed to reducing methane emissions to near zero by 2030. This will be an important topic for US LNG exporters.
Europe's risks in depending on US LNG
Despite US commitments, US allies, especially in Europe, remain concerned about US LNG supplies in the coming years.
Henning Gloystein, director of energy and climate change at Eurasia Group: “The big problem for Europe is that there are not many alternative LNG supply options left.”
In fact, US LNG is particularly attractive to European customers because:
transport distance from North America is relatively short…
the terms offered by US suppliers are quite flexible
For example, the US often allows buyers to easily resell gas, while other gas powers like Qatar usually impose restrictions.
Demand shifts as imports surge in the Asian market
Asia is expected to ramp up LNG imports in the future.
China recently reclaimed the position of the world's largest LNG importer from Japan in 2023: LNG purchases increased +12.6% to nearly 71 million tons.
Japan's LNG import volume reached the highest level since January 2023, and South Korea's imports also hit the highest since February 2021.
Global energy shortage risks:
According to Shell's LNG Outlook 2023 forecast, the world may not have enough LNG from 2030.
This stems from rising energy demand, especially in Asia….
and efforts to reduce carbon emissions, as countries and businesses switch to cleaner energy sources.
Interim conclusion
By 2023, the US had exported 91.2 million m3 of LNG globally. This means that in just over a decade, the country has transformed from a net importer to the world's largest LNG exporter - dominating its two top rivals, Qatar and Australia.
It is no coincidence that the US has vigorously developed LNG extraction technology, as energy will become a scarce commodity in the future amid continuously rising fuel demand. Whether other countries can develop shale extraction technologies to enter the LNG export market remains a big question.
However, the US appears to have solidly consolidated its position in the Asian and European markets. Although challenges from potential competitors remain, the US's current stability in the energy industry is still a key factor.
However, allies also have concerns about future political risks, as the US could follow Russia's example by using energy to pursue other political objectives once its supply dominance has grown.
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