An Overview of US LNG Production and Exports

Investors may be seeing a lot of reports about rising US LNG (liquefied natural gas) exports. However, they may not be familiar with what goes into the making of LNG, its transport, or uses. Let’s review the basics of LNG.

LNG is natural gas in a liquid state. Cooling natural gas to about -260 degrees Fahrenheit converts it into a liquid. As a liquid, the gas has a volume around 600 times lower than its volume in a gaseous state. Therefore, LNG is easier to transport, especially to places where gas can’t be transported through pipelines. Specially designed tankers keep LNG at a low temperature during transport. Afterward, companies revert the LNG to a gaseous state for use. Before looking at the uses of LNG, let’s first review some often-confusing terminology related to hydrocarbon fuels.

Natural gas is primarily methane (a compound with one carbon and four hydrogen atoms). It also comprises heavier hydrocarbons, such as ethane, propane, butane, isobutane, pentane, and gasoline. Natural gas also contains non-hydrocarbon gases such as carbon dioxide and nitrogen. LNG is simply natural gas in its liquefied form.

Meanwhile, the process of fractionation separates heavier hydrocarbons such as ethane, propane, and butane from raw natural gas. As these heavier hydrocarbons have different uses, companies sell them separately as NGLs (natural gas liquids).

Another hydrocarbon group, LPG (liquefied petroleum gas), adds to the confusion. Only three of the abovementioned heavier hydrocarbons—propane, butane, and isobutane—are also considered LPG. The reasoning behind the term is that these hydrocarbons are produced during petroleum refining.

Natural gas is also used as a fuel in its compressed form, CNG (compressed natural gas). This form differs from LNG in terms of how it is made and used. While LNG is made by cooling natural gas, CNG is made by compressing it. Whereas LNG must be reverted to a gaseous state for use, CNG is used as a fuel in its compressed form and does not require cooling.

After LNG is reverted to its gaseous form, it is used as a fuel, for generating electricity, for heating, and other uses. In the US, some power plants store LNG for use when power demand is high or transportation capacity is constrained. Some ships and vehicles, which have especially designed fuel tanks, use LNG as a fuel.

The US’s abundant, low-cost natural gas makes it a major LNG exporter. In 2018, the US exported 1,083 Bcf (billion cubic feet) and imported 76.5 Bcf of LNG, resulting in net LNG exports of 1,006.5 Bcf. The top importers of US LNG include South Korea, Mexico, Japan, China, and India. Meanwhile, the US imports a major chunk of its LNG from Trinidad and Tobago. The US is the third-largest LNG exporter in the world, following Australia and Qatar.

In this year’s first half, US LNG exports rose 37% year-over-year. Exports were boosted by two new liquefaction units became operational in that period: the first train of Sempra Energy’s (SRE) Cameron LNG facility and the second train of Cheniere Energy’s (LNG) Corpus Christi facility.

There are four commercially operating LNG export facilities in the US:

1. Cheniere’s Sabine Pass facility in Louisiana, where five trains operate commercially.
2. Cheniere’s Corpus Christi terminal in Texas, where two trains operate commercially.
3. Dominion Energy’s (D) Cove Point terminal in Maryland, where one train operates commercially.
4. Sempra’s Cameron LNG facility in Louisiana, where one train operates commercially.

Together, the above facilities have a total LNG export capacity of 5.4 Bcf per day. There are also two new facilities currently under commission: Kinder Morgan’s (KMI) Elba Island liquefaction facility and Freeport LNG Development’s facility.

Cheniere’s Sabine Pass facility is the largest and oldest LNG export facility in the US. The facility’s first train started commercial operations in 2016. Its five trains have a combined capacity of around 3.0 Bcf per day. The company has made a final investment decision for a sixth train. The company is also constructing a third train at its Corpus Christi terminal. Similarly, Sempra has a second train under commission at its Cameron facility.

With the additional facilities coming online, US LNG export capacity is set to rise to 8.9 Bcf per day by the end of 2020. The Golden Pass LNG export facility in Texas is another project expected to add to the export capacity. Qatar Petroleum, ExxonMobil (XOM), and Conoco Phillips (COP) are jointly constructing the facility. The project’s expected in-service date is in 2024.

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