How LNG exporters in the U.S. can take full advantage of their opportunities

In 2021, the U.S. was the third leading exporter of liquefied natural gas (LNG), behind only Australia and Qatar. Fast forward just 2 yr later, and the combination of market forces and European demand has bumped the U.S. to the top spot.¹

For U.S. LNG exporters, this is certainly a welcome sign. However, this skyrocketing demand for natural gas brings with it increased scrutiny of LNG import terminals and third-party access (TPA), especially given potential impacts to the ongoing energy transition.

Terminal operators have been working tirelessly to meet this demand while staying up-to-date on the latest rules and regulations. Many are turning to cloud-based software to manage LNG operations, using technology for flexible contract management, planning and scheduling to ensure auditability and transparency.

However, while many oil and gas companies operate globally, regional differences in how LNG is managed bring unique requirements. It is especially important for businesses to understand their exact requirements prior to implementation, or they run the risk of draining resources on a solution that fails to fit their needs. Industry-leading software can provide a safety net with continuous updates that cater to new industry developments.

U.S. role in the global LNG market. Europe is in desperate need of LNG supply—in fact, the continent is in danger of a dark market next winter if Chinese demand increases and the market tightens.² As the U.S. is poised to be the world’s leading LNG exporter in 2023, project developers in the country are racing to provide LNG supply to Europe. Note: Projects on the East Coast and the Gulf of Mexico are better suited for export to Europe, while West Coast projects will drive the long-term coal-to-gas shift in the Asia-Pacific region due to logistics and the cost of using the Panama Canal.

One key challenge that remains in the U.S. is the investment climate for fossil fuels. Despite the short-term surge in global LNG demand to meet energy needs, companies are wary of large-scale investments in this sector. The Inflation Reduction Act (IRA) will likely skew investments further toward green alternatives. Businesses, nonprofits and other local organizations can receive incentives for powering operations with clean energy.³ Additionally, LNG export projects often take up to 4 yr to develop, meaning they would not be operational until after 2026, which does not capitalize on the immediate surge in demand.

The U.S. presently has several long-term supply contracts signed for new LNG terminal projects and the expansion of existing terminals. However, in this challenging climate, the country may struggle to lock in additional long-term deals to build on current momentum.

LNG’s role in the energy transition. It is important for investors and operators to remember that despite LNG’s immediate role in filling the energy gap, it plays an equally important role in the long-term energy transition and should be a major source of energy moving forward (FIG. 1).

FIG. 1. LNG plays an important role in the long-term energy transition and should be a major source of energy moving forward.

The single most important role of LNG in the energy transition is in supporting the shift from coal and oil towards LNG and natural gas. It is estimated that natural gas could replace one-third of the world’s coal by 2030 if deployed to its fullest extent.⁴ 

Though seemingly contradictory from an outside view, LNG is such an important driver of the energy transition for several reasons. It is the cleanest fossil fuel available that can be transported around the globe, making it a more viable alternative to other fossil fuels. What may surprise some is that LNG can be stored for long-term use, while electricity cannot—this makes it a stronger alternative to balance cost, energy security and environmental impact.

As every region plays a different role in the global LNG market, they will all utilize LNG for the energy transition in different ways, and corresponding software solutions must be able to handle these differences.

The role of software for U.S. export terminals. For U.S. export terminals, specifically, software will impact day-to-day operations in two ways.

First and foremost is optimizing productivity in a challenging energy climate. Software can help tolling and merchant-based LNG terminals to optimize production and cargo schedules to find room for lucrative spot cargoes (e.g., it is incredibly costly to miss a reserved slot at the Panama Canal due to capacity constraints, so planning is very important for East Coast exporters that intend to send cargoes to the Asia-Pacific). Software can also help to manage nomination and change requests from customers. These requests can be incredibly time-sensitive, and failure to meet these tight deadlines could result in loss of business.

Software can also help U.S. export terminals manage the energy transition in a simple, effective manner. As the demand for greenhouse gas (GHG)-neutral LNG grows, exporters will have to manage carbon capture, utilization and storage (CCUS) and documentation on carbon footprints to garner interest from investors and customers alike.

Regulations will only become more stringent. The industry must align with guidelines similar to the International Group of Liquefied Natural Gas Importers’ (GIIGNL’s) framework for GHG-neutral LNG in the long term, and companies will need the auditability that cloud-based software can provide to ensure compliance.

While the U.S. needs software that can support LNG export terminals, the needs of other regions are vastly different. Europe is heavily import-focused and relies on software that can integrate with transmission system operators (TSO) for gas nomination, while ensuring fair implementation of third-party access regulations. The ability to optimize spot cargoes is much less important here than for export-heavy areas, so these solutions must differ in scope.

Takeaway. It is critical that LNG terminal operators do their due diligence before choosing a software solution. Not only must the platform meet unique regional needs, but in many cases, it must meet the need of multiple regions.

Software will be vital in helping both importers and exporters of LNG manage this tricky market landscape and the increasingly quick energy transition—those who do not choose a solution uniquely tailored to their needs are simply wasting time and resources. GP

NOTES

1. Disavino, S., “U.S. poised to regain crown as world's top LNG exporter,” Reuters, January 2023, online: U.S. poised to regain crown as world's top LNG exporter | Reuters
2. Rashad, M. and R. Bousso, “Analysis: Europe facing costly winter without enough long-term LNG deals,” Reuters, April 2023, online: Analysis: Europe facing costly winter without enough long-term LNG deals | Reuters
3. U.S. Environmental Protection Agency (EPA), “Summary of Inflation Reduction Act provisions related to renewable energy,” online: Summary of Inflation Reduction Act provisions related to renewable energy | US EPA
4. Rice, T., “Unleashing U.S. LNG: The largest green initiative on the planet,” EQT Corp., online: Presentation title (Verdana 44 pt, bold) (eqt.com)

 

Magnus Ulseth is the Director of Energy Transition Solutions at Quorum Software. He has spent more than 10 yr assisting global energy companies with digitization and business transformation and is now focused on supporting the energy industry in a pragmatic approach to the energy transition. Prior to Quorum Software, Ulseth held leadership roles at Tieto, Accenture and Hytracc Consulting.