American Oil and Gas Reporter - March 2016 - 50

SpecialReport: Gas Industry Strategies

LNG Puts New Demand On Shale Plays
By Jason D. Baihly
SUGAR LAND, TX.-The U.S. Energy
Information Administration forecasts
worldwide natural gas consumption will
increase from 325 billion cubic feet a
day in 2015 to 390 Bcf/d by 2025 and to
more than 500 Bcf/d by 2040, with much
of the increase in developing countries.
While about 10 percent of the natural
gas produced globally is now liquefied,
LNG is expected to account for a growing
share of the world natural gas trade as
liquefaction capacity expands.
With the shale gas revolution positioning the United States to become a
major natural gas exporter, more than
two dozen LNG export projects have
been proposed in the lower-48, representing a combined capacity exceeding
200 million tons per annum (MTPA).
The Federal Energy Regulatory Commission has approved five of those terminals to date: Corpus Christi and Freeport
in Texas, Sabine Pass and Cameron in
Louisiana, and Cove Point in Maryland
(interestingly, all five are converted regasification facilities originally permitted
to land LNG imports). Together, these
terminals have 12 liquefaction trains, all
of which are scheduled to commence operations over the next four years.
Most experts believe U.S. LNG export
capabilities will ultimately equal about

10 percent of domestic production. But
to appreciate the significance of the potential demand call on U.S. gas production,
consider that EIA data show the average
volume of working gas maintained in
storage in 2014 was 2.2 trillion cubic
feet, which is roughly 38.7 MTPA of
LNG. This is the same volume of gas as
the maximum proposed annual output of
only three of the four FERC-approved
LNG projects under construction on the
Gulf Coast.
Where will all that gas come from?
The answer is that the demand growth
on domestic supplies will have to be met
with increased drilling, particularly in
the six major U.S. shale gas plays: Barnett,
Fayetteville, Woodford, Marcellus, Haynesville and Eagle Ford. It will take a
significant quantity of shale gas wells to
deliver enough gas to keep these LNG
trains operating at full capacity.
To better quantify the impact of LNG
exports on the market, a study was conducted to estimate the number of horizontal
shale gas wells needed to continuously
supply one U.S. LNG train. Shale gas
basins were studied to estimate both the
number of wells needed to supply a train
initially, and the number and frequency
of future wells that would have to be
drilled to maintain that train at full
capacity. Infrastructure and rig counts,
decline trends, economics, and drilling

FIGURE 1
Global LNG Actual and Forecasted Shipments (2008-20)

Annual LNG Shipments (MTPA)

400

350

300

250
LNG Global Market Actual

200

High Forecast - 7% Growth
Low Forecast - 1% Growth
Avg Forecast - 4% Growth

150

100
2008

2010

2012

2014
2016
Year of Shipment

50 THE AMERICAN OIL & GAS REPORTER

2018

2020

times were included in the analysis.
Shale Gas And LNG Exports
As shown in Figure 1, 244 MTPA
(12.6 Tcf, or 32 Bcf/d) of LNG were
shipped around the globe in 2014, representing about 9 Bcf/d growth compared
with 2009. The figure also shows alternative forecasts of LNG shipments through
2020, based on high-, average- and lowgrowth cases.
The amount of LNG shipped per
year has been flat since 2011. And although depressed oil prices (LNG pricing
is based on oil in global trading) and
decreased gas demand projections for
some regions of the world further slowed
LNG growth in 2015, LNG cargos are
expected to increase dramatically going
forward.
The United States is unique in that
natural gas is traded on a spot price
basis. This can make a Btu or cubic feet
of gas significantly cheaper than in other
parts of the world, particularly when the
price of oil is relatively high. The United
States has other distinct LNG exporting
advantages, namely the existence of vast
shale plays located relatively close to
LNG ports and connected by comprehensive transportation and storage infrastructure.
The study found that a typical proposed
U.S. LNG train shipping 4.5 MTPA would
require an input of 636 million cubic
feet a day. Some LNG export facilities
can service six or more trains, including
Cheniere Energy's six-train Sabine Pass
plant in Cameron Parish, La. Supplying
six fully loaded trains each with a 4.5
MTPA output would be equivalent to a
pipeline stream servicing a constant 3.8
Bcf daily or 1.4 Tcf annually.
While the majority of the many proposed lower-48 export projects still are
seeking permitting approval, U.S. LNG
exports have become reality, with the
first of the six planned liquefaction trains
at Sabine Pass-the first of the five FERCapproved terminals to enter service-loading its inaugural cargo (3 Bcf equivalent
of LNG) on the Asia Vision tanker in late
February for delivery to Brazil.
How will growing volumes of U.S.
LNG exports impact the six major shale
gas basins in coming years? The total
daily gas production rates from the basins
are varied, with the Marcellus the most

American Oil and Gas Reporter - March 2016

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