What is LNG? Part 3 of Series

LNG is the end product of super cooling natural gas to a condensed cryogenic liquid so it can be economically stored, transported and consumed elsewhere.??As a liquid, LNG is lighter than water.?The boiling point of LNG (coverts to gas) is about -162 degrees Centigrade.?Keep the temperature cooler than -162 C and it’s all liquid.

The commercial application is shipping LNG for consumption.?Countries without natural gas resources are prime LNG consumers. The super cooled liquid product is transferred into special marine ship tankers for delivery to a degasification terminal. ?Upon ship landing at an import LNG terminal or Floating Storage Degasification Unit (FSDU), the LNG is warmed, converted back to a gaseous state and transferred into pipeline sales for consumption.?

Brief History of LNG

LNG is not a new process with natural gas. British scientist Michael Faraday successfully chilled natural gas to liquid form in 1820.?The first U.S. LNG plant was built in West Virginia by Thomas Cabot in 1912, who sought to liquify natural gas during the summer months and use the gas during the winter heating months. Thomas and his father Godfrey Cabot patent the first shipping LNG container in 1914. The Cabot LNG plant went into operation in 1917 and was economically unsuccessful.?

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Godfrey Cabot formed the Cabot Corporation in 1882 focused on producing carbon black using natural gas as feedstock.?The West Virginia based firm developed gas, oil, pipelines and other to become the 4th largest American producer of carbon black by 1890. Carbon black was used in inks, paints, shoe polish and other.?The use of carbon black in tire manufacturing propelled the Cabot Corporation into an industrial tier of few equals.?The Cabot Corporation has been a major U.S. producer of natural gas before merging with Cimarex Energy in May 2021 to form Coterra Energy. ?The Cabot Corporation did not pursue LNG shipping or exports.?However, the corporation is recognized for its contribution to early LNG development.

LNG shipping origin

England relied heavily on coal burning to produce town gas for specific uses pre and post WWII.??The country was coal rich and absent of natural gas resources at the time.?Discovery of North Sea gas and oil was still a decade away. The “Great Smog” hit London in 1952. Five days of London climatic fog with coal smoke produced smog so thick and deadly that 4,000 deaths were directly linked to breathing smog. An additional 8,000 deaths in the following months were attributed to smog exposure.?Road, rail and plane traffic halted due to non-visibility. Something had to be done to replace town gas producing smog.?The UK Parliament passed the Clean Air Act in 1956 prompting the search / use of natural gas as replacement of coal.??LNG was the answer and came from an unlikely development origin.

The first successful U.S. LNG shipment was in 1959 from Calcasieu, Louisiana to Canvey Island, UK on the ship, Methane Pioneer.?This shipment was years after William Wood Prince, president of Chicago’s Union Stock Yard and Transit Company along with Continental Oil Company of Oklahoma formed Constock International Methane Ltd. in 1955 to develop processes for shipping LNG. Prince original planned to utilize LNG as an economic energy source for meat freezing at cattle processing facilities in Chicago, Illinois. ?Continental Oil was secured as a development partner and natural gas source provider.?Continental needed markets for newly discovered South Louisiana gas at the time.

?Six trial LNG shipments continued through 1959 across the Atlantic until March 1960 when Shell Oil joined Constock as a 40% shareholder. ?The LNG entity was renamed to Conch International Methane. Trial success and the addition of Shell Oil convinced the UK government in 1961 to approve a 15-year LNG import contract from Shell’s Algeria operations starting in 1964.?Natural gas from the U.S. was left out.

U.S. LNG Export in the 1960’s and Natural Gas Legacy

LNG export development in the U.S. during the 1960s and ‘70s was very small to almost nil.?At the time, LNG growth was in the import market. ?Industry regulations on well-head control prices, transportation restrictions across interstate/intrastate markets and other were not constructive for LNG export.

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Phillips Petroleum Company and Marathon Oil Company jointly exported annually about 50 BCF of Alaskan natural gas as LNG over a 15-year contract from their liquefaction terminal at Kenai, Alaska to two Japanese utilities, Tokyo Electric Power Company and Tokyo Gas Company Limited.?The little amount of LNG export was sourced from intrastate pipelines connecting gas production to available LNG facilities in the same state.?

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Generally, natural gas was a waste or uneconomic product since the first oil wells were drilled. ?There was little use for natural gas besides making carbon black usually in close proximity to gas production. ?Oil wells often have natural occurring associated gas produced at the well-head with oil.?Today, commercial volumes of natural gas are separated at the well-head and moved to a sales line.?In the past, removal / separation of natural gas was achieved by flaring, burning the gas on location with authorization from a state’s oil -gas regulatory agency. ?Small scale flaring is still authorized in several states. ?Flaring was so wide spread along the Louisiana Gulf Coast during the war years of WWII that German U-boat commanders targeted U.S. merchant ship silhouettes at night against an illuminated backdrop of flaring gas light. Drillers who found dry gas with no oil often plugged the wells as dry-holes.

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Natural gas became a large intrastate feedstock for the petrochemical industry along the Gulf Coast due to supply proximity after WWII.?Texas and Louisiana witnessed the most growth of petrochemical plants with their local gas supply. Natural gas market expansion followed into electric power generation, accelerated residential use and other with the Natural Gas Policy Act of 1978 (NGPA).?A breakdown of domestic 2021 natural gas use is illustrated in figure 2.?

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How large are U.S. LNG Exports?

LNG exports climbed from zero in January 2016 to reach 76.4 million tonnes in year 2022 as reported by Wood Mackenzie. ??This total equates to about 3.721 TCF of natural gas converted in a year to LNG or 10.19 BCFGPD using a conversion of 1 million tonnes (LNG) = 48.7 BCF gas.?The U.S. Energy Information Administration (EIA) reported LNG exports averaged 10.6 BCFPD in 2022.?We’ll average the two 2022 LNG values to 10.4 BCFPD.

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Total daily U.S. natural gas consumption peaks slightly above 100 BCF during season heating months of November through February.?Refer to Figure 3. ?LNG exports are equivalent to about 10.4% of total U.S. consumption and will continue to grow. ?The U.S. is expected to finish 2023 above former 2022 LNG export leaders Australia and Qatar.

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The export dollar value of natural gas liquids, natural gas via pipeline and LNG totaled about $ 100.7 billion in 2022 as per the U.S. Census Bureau, Dept. of Commerce. ?These exports are an important credit on the U.S. balance of trade totaling 4.87% of all export goods. ?The export dollar value is a meaningful number compared against other top leading manufactured export categories such as: semiconductors at 3.22 %, motor vehicles (cars, trucks, buses & other) at 3.91% or pharmaceuticals at 4.37%. ?Refer to U.S. Department of Commerce, Bureau of Economic Analysis, February 7, 2023 report CB 23-17, BEA 23-05 for additional items and values (https://www.bea.gov/sites/default/files/2023-02/trad1222.pdf).

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Securing “New” LNG Exports, Cheniere Energy

The Obama administration in 2011 provided the first permission for LNG export to Cheniere Energy Inc.’s Sabine Pass, Louisiana terminal. ?Cheniere Energy’s legal / management team and investors demonstrated mastery in understanding export regulations of Free-Trade Agreements (FTA) vs. non-Free Trade Agreements under the Natural Gas Act (NGA) to secure LNG export permission.

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Natural gas exports require Department of Energy (DOE) authorization to countries with U.S. free trade agreements (FTA). ?However, the NGA required DOE to grant export authority / permission to non-FTA countries, unless exports are inconsistent with the public interest or where trade is explicitly prohibited by law or policy. ??Research shows FTA countries in 2011 included: Australia, Bahrain, Chile, Israel, Jordan, Morocco, Oman, Peru, and Singapore.?More countries adopted FTA with the U.S. since 2012. ?

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Cheniere Energy also recognized and acted to monetize the growing natural gas supply from U.S. shale basin development.?With permit in hand, Cheniere Energy started work converting the Sabine Pass terminal from importing LNG to exporting.?Other entities soon secured LNG export permits following the same non-FTA process in 2012. ??

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The Obama administration favored natural gas exports as reported by the Washington Post in an article by Brad Plumer, dated May 6th, 2013.?Overall, “Administration officials reportedly think that the trade and geopolitical benefits of increasing exports outweigh the possible downsides”.

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Russia Occupies Ukraine Crimea

The 2014 occupation of Ukraine Crimea by Russia prompted the Obama administration to promote European energy security away from Russian pipeline gas. ?Abundant U.S. natural gas shale basin development continued through 2014 to diminish skepticism of U.S. natural gas reserve sustainability. ?U.S. natural gas provided means for European gas security through LNG while also providing a valuable export good for the U.S. balance of trade.?

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The increased use of natural gas in power generation helped pave the way for LNG as 2015 CO2 emissions fell 12 percent lower than 2005 levels as per studies at the time. The economic benefits of U.S. domestic natural gas development for employment, services, goods and revenues are significant. ?A 2012 IHS report noted safe development of unconventional oil and natural gas supported 1.7 million jobs. Lifting of U.S. crude oil export restrictions in 2015 was also a major milestone before the first 2016 LNG shipment. ?

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Historic 2016 LNG Shipment by Cheniere Energy

New exports of Liquified Natural Gas from the U.S. started in 2016 by Cheniere Energy with the historic first shipment from Sabine Pass to Brazil.?The Chevron owned vessel Asia Vision debarked on the historic trip from Sabine Pass on February 24, 2016 carrying LNG cargo equivalent of 3 BCF natural gas to state oil giant Petrobras.?Henry Hub natural gas prices closed on the same day at $ 1.85 per million Btu.

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The Obama administration on May 4, 2016 in a joint statement at U.S.-EU Energy Council meeting by U.S. Secretary of State John Kerry and U.S. Energy Secretary Ernest Moniz read, “The council welcomed the lifting of U.S. crude oil export restrictions in 2015 and the commencement of U.S. LNG exports from the Gulf Coast in 2016, as they are important milestones for global energy markets that can also help improve security of supply globally and in Europe.”?

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2023 LNG Market

The U.S. 2023 LNG export market is robust. Department of Energy (DOE) listed 161 separate registered LNG vessels departing U.S. terminals in January and February with cargo to 27 nations. ?

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Europe is the major destination to date in 2023 measured by volume. ?An average LNG full vessel shipment is equivalent to about 3.5 BCF of natural gas. ?A few vessels have higher capacity and some deliveries are not full.?Shipments to two different destinations are often made on the same ship. Refer to figure 4 for volumes and destinations. ?LNG vessels complete a round-trip from a U.S. Gulf Coast terminal to Europe and return for a refill in 32 days to 50 days.?Travel time varies with vessel traffic at the destination facility.?

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Germany with its large petrochemical industry is not receiving much U.S. LNG.?The first two months of 2023 has German U.S. LNG imports at 3.4% of the total or 22.54 BCF.?Further research may determine where Germany is receiving natural gas in a future article along with what European industries are prime natural gas consumers.

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Benefits of LNG

Natural gas is the affordable, clean, low carbon fossil fuel with high sustainability.?LNG is safe and offers energy security to countries not having natural gas resources to power modern economies.?LNG exports are a positive contribution in the U.S. balance of trade.?Crude oil, gasoline and refined petroleum products are the top export goods in dollar value for the United States.?A premier energy supply needs to be reliable, affordable, secure, clean, sustainable and supply other benefits.?Natural gas is a feedstock to the petrochemical industry for fertilizer and other.?Wind, solar and other renewables fall short of natural gas. ?