Is The U.S. LNG Industry Witnessing Its Next Big Investment Boom?

While the rise of the U.S. to the top of the global liquefied natural gas (LNG) exporters’ leader-board may be eye-catching for many, its implications and the investment opportunities on offer have taken the energy industry by storm.

The sheer scale of the shift makes it hard to ignore. According to the Energy Information Administration (EIA) – statistics arm of the U.S. Department of Energy – the country’s LNG exports often average north of 11.5 billion cubic feet per day (bcf/d).

In 2023, the export average came in at 11.9 bcf/d; an uptick over 12% or 1.3 bcf/d compared to 2022, and saw the U.S. overtake export market leaders Qatar and Australia. It also prompted the EIA to project an uptick in capacity by another 10 bcf/d by the end of 2027.

The agency currently forecasts U.S. exports to increase by another 2% in 2024 to average 12.2 bcf/d. In 2025, as more capacity comes onstream, the forecast is for an additional 18% or 2.1 bcf/d growth. No wonder much of the energy world is currently attempting to get in on a likely multi-billion dollar opportunity.

Energy World’s Mightiest Head To America

As the coal switch-off gains traction and natural gas is seen as a low carbon alternative, the International Energy Forum (IEF) forecasts the global LNG market to grow by another 25% by the end of the current decade, led by Asia. With all projections pointing to the U.S. leading the export market, its LNG industry has become a hot spot.

On July 22, Australia’s Woodside Energy grabbed headlines, by announcing its agreement to acquire U.S. LNG developer Tellurian for $1.2 billion. For Woodside, Tellurian’s Driftwood site – a proposed multibillion-dollar LNG export terminal in Louisiana – is the big prize.

Meg O’Neill, Chief Executive Officer of Woodside Energy, did not hold back her excitement over the deal which is expected close by the end of the year. She declared the acquisition could make her company a “global LNG powerhouse.”

O’Neill isn’t the only global industry head cooing about U.S. prospects. The trend of foreign investments in U.S. LNG plays is likely to continue. Saudi Aramco and ADNOC, Abu Dhabi’s state-owned energy company, recently made their presence felt via multi-year supply deals and direct investment commitments for projects.

Sources suggest Japanese LNG importers – many of whom have long-standing commercial ties with Woodside – are also proactively looking for investment opportunities. Japan’s JERA and JAPEX already hold minority stakes in U.S. facilities, and Woodside’s move may serve as a catalyst for further partnerships stateside.

European supermajors are also looking to up their act and rub should with their American counterparts. TotalEnergies leads the European pack with existing minority U.S. LNG stakes.

And let’s not forget – Woodside would become only the second foreign entity to control a U.S. LNG facility upon completion of the Tellurian deal. QatarEnergy, which holds a majority stake in the Golden Pass LNG project, was the first.

As the market heats up, it is no coincidence that Gastech, the natural gas industry’s biggest annual gathering, is being fittingly held this year in Houston, Texas, U.S. – the country’s energy capital at the heart of the ongoing market shift.

Expect the industry fixture that’s been running for over five decades to encapsulate the buzz, and may be even provide the setting for another deal or two to emerge.

Why Now? Why here?

Both the timing and location of what may appear to be another investment boom are grounded in wider market economics.

Starting with timing, stabler market conditions are expected, perhaps even for the remainder of the decade. Asia’s appetite for LNG is likely to rise steadily, with China leading the way and potentially importing 9-12% more on an annualized basis. Extreme market volatility may also subside thanks in large part to U.S. exports.

This brings us to location, where the primary advantage of U.S. terminals is the ability to ship LNG to either Asia or Europe from its East or Gulf coastlines unconstrained by geography. Furthermore, the product sourcing model for the terminals is underpinned by an extensive and unbundled pipeline network as well as relatively cheap and abundant natural gas.

Such an operational dynamic also offers ample arbitrage opportunities. In simple terms, arbitrage is the practice of taking advantage of a price difference between two or more markets for a particular commodity, with the profit being the difference between the market prices. In this case, the arbitrage opportunity exists by buying low in the U.S., and selling high in parts of Asia or Europe.

2016 And All That

On Febraury 24, 2016, Cheniere Energy announced it was dispatching its first LNG cargo to Brazil with another tanker to be loaded a few days later, marking the historic start of U.S. shale exports and the country’s entry into the global LNG market. There began the domestic industry’s first investment boom.

Remarkably less than a decade on, the U.S. is the world’s largest LNG exporter and one that is set to amplify its market clout. According to the U.S. Federal Energy Regulatory Commission (FERC), currently there are eight existing LNG export terminals, seven approved and under construction, 12 approved but not under construction, and another six either at proposal or pre-filing stage.

Not all projects that haven’t been completed may come onstream and overcapacity remains a matter of intense industry conjecture. Progress will also depend on prevailing market conditions, funding and project management efficiencies.

Therefore, it would be foolhardy to think everything will be plain sailing. For example, the Golden Pass LNG project has seen cost overruns and multiple delays, and its lead contractor filed for bankruptcy in May.

However, FERC filings do offer a glimpse of near as well as medium to long-term market prospects. There is also wider ground for investors to have belief.

Back in 2008, many U.S. terminals currently exporting LNG were initially conceived as importation projects. The country’s shale exploration bonanza then turned the situation on its head, often resulting in sub-$2/mmbtu Henry Hub domestic prices at the turn of the last decade.

The event sent companies on the hunt for lucrative overseas markets, and rest is industry history. U.S. exports now have a thriving multinational market and played a major part in helping Europe mitigate its exposure to piped Russian gas in the wake of the Russia-Ukraine war in 2022.

All of it came about thanks to ingenuity and the spirit of private enterprise. As fresh capital flows into the U.S. LNG industry, many investors are counting on those qualities as they seek returns in a fiercely competitive market.