Global liquefied natural gas (LNG) demand could exceed available supply by up to 150 million tons per annum (mtpa) by 2025, and planned LNG projects outside North America could supply roughly one-third of that shortfall.
So says the top executive of a company developing a South Texas LNG export project and associated natural gas pipeline.
“This leaves approximately 100 mtpa of new liquefaction capacity that must be developed and built in North America,” said Matt Schatzman, president of CEO of NextDecade Corp., in an April 26 keynote address to the CWC China LNG & Gas International Summit in Beijing. “We believe most of this new capacity will be built on the Gulf Coast of the United States.”
NextDecade’s projects include:
- The 27-mtpa, six-train Rio Grande LNG export terminal in the Port of Brownsville, Texas
- The Rio Bravo Pipeline, which would transport up to 4.5 billion cubic feet per day of natural gas from the Agua Dulce supply area near Corpus Christi to Rio Grande LNG.
Highlighting the United States’ growing prominence in the global LNG market, Schatzman told conferees that U.S.-sourced LNG could represent approximately 19 percent of available supply by the end of next year. He believes that figure could hit 32 percent of available supply by 2025.
“We are in the early stages of a prolonged period of structural demand growth in LNG,” Schatzman said. “In 2017, the global LNG market had grown to 290 mtpa, or by nearly 19 percent since 2015. We now have more than three dozen countries importing LNG around the globe.”
Much of the growing appetite for LNG is coming from China, where demand grew by nearly 50 percent year-on-year in 2017, according to Schatzman. Moreover, NextDecade anticipates that Chinese demand alone could surpass 80 mtpa by 2025 – making it the world’s top LNG market.
Plentiful Permian Associated Gas
According to Schatzman, much of the new LNG volumes destined for China could originate as associated gas produced in the Permian Basin of Texas and New Mexico. NextDecade asserts that the Permian may hold nearly 500 trillion cubic feet of natural gas at breakeven prices below zero dollars.
Schatzman reasons that the production economics of the Permian’s prolific Midland and Delaware component basins are tied to oil, not natural gas, production. Moreover, he points out that state regulations in Texas and New Mexico prevent associated gas produced from these basins from being flared off on a long-term basis.
That translates into abundant, low-cost feedstocks that could supply coastal liquefaction plants for decades.
“The Permian Basin could supply more than 50 years of gas at breakevens below $0, even if natural gas production in the Permian grows to more than 25 billion cubic feet per day, enough to feed multiple incremental LNG projects along the Texas Gulf Coast,” the executive said at the CWC summit.
“Under these conditions, Permian producers must find a market for the associated natural gas to enable oil production,” Schatzman said. “This, in turn, drives down the breakeven economics of the natural gas to extremely low levels. In fact, this drives down the breakeven economics to levels below $0.”
The very low breakevens do not mean, of course, that producers would actually give away the associated gas or pay someone to take it away.
One of Schatzman’s colleagues further described the $0 breakeven economics. The basis at the Waha gas hub demonstrates the significantly discounted price of Permian gas compared to the benchmark Henry Hub price, explained Patrick Hughes, NextDecade’s vice president of corporate strategy and investor relations. Also, he said the and oil-based production economics suggest associated gas is produced at breakeven economics below $0 assuming a $60 West Texas Intermediate (WTI) oil price.