The year 2019 is poised to be a big one for the U.S. LNG industry as domestic export capacity is set to nearly double to 10 billion cubic feet per day (Bcf/d). However, there is the risk that a lack of new LNG facilities after this next expansion will result in a supply gap over the next decade.

Current LNG export capacity from the U.S. comes from Cheniere Energy Inc.’s (NYSE American: LNG) Sabine Pass terminal along the Gulf Coast and Dominion Energy’s (NYSE: D) Cove Point terminal in Maryland. Capacity is set to grow significantly next year as a result of several new facilities coming online along the Gulf Coast and Atlantic Coast. These facilities include Freeport LNG’s terminal in Texas; Kinder Morgan Inc.’s (NYSE: KMI) Elba Island, Ga., terminal; Cheniere’s Corpus Christi, Texas, terminal; and Sempra Energy’s (NYSE: SRE) Cameron, La., terminal.

Despite this growth, forecasts anticipate far more export capacity will be required to handle increased domestic production and global LNG demand. Cheniere officials reported that nearly 16.5 Bcf/d of additional LNG will be required by meet global demand by 2030.

Multiple companies have proposed new LNG plants and terminals, but they have not received enough support via long-term commitments from buyers necessary to justify the large expenses involved in building these facilities.

Should these projects be pushed back or canceled, it’s likely that more midstream capacity will be added to help fill the supply gap, according to a recent Alerian report titled, "US LNG Export Growth and the Benefits to Midstream."

“Without the ability to export natural gas on tankers as LNG and via pipelines to Mexico and Canada … the natural gas supply in the U.S. would overwhelm domestic demand. This would have negative implications for natural gas prices and limit production growth,” the report said.

The lack of new LNG terminals will likely result in an increased need for new or expanded gathering pipelines and natural gas processing plants to move and process the increased production to existing export terminals. Expansion projects are not only cheaper, but quicker to complete than newbuild projects. The permitting process is easier and expansions aren’t as dependent on long-term contracts to move forward.

“Production growth benefits midstream companies as volume-driven businesses. More natural gas means more volumes to gather, process and transport, and that requires more infrastructure,” according to Alerian.

Though the bulk of U.S. LNG export facilities are in Texas and Louisiana, they utilize production from around the country. This will require both new and expanded pipelines to transport volumes from all of the major plays in the U.S., including basins as far apart as the Appalachian and the Permian.

Because there’s such a high level of interconnectedness between natural gas pipelines in the U.S., facilities like the Sabine Pass terminal have access to every producing region in the Lower 48 states east of the Rockies, the report said.

Much of these supplies will be used to meet the still-growing demand for LNG in Asia. Japan is the largest importer of LNG, but China has been leading the way in terms of demand growth. In 2017, China was responsible for 44% of the global uptick in LNG imports.

A potential trade war with China would have a negative impact on the U.S. LNG industry and create another headwind for projects that have not yet secured a final investment decision (FID).

However, the Alerian report noted that China was one of 40 countries that imported LNG in 2017 and the U.S. exported to 25 countries. Though a customer base without China wouldn’t be ideal, other customers could help bridge that loss and the use of spot markets and short-term contracts is a way to quickly develop new trade partners.

“While China is a major player in the LNG market, it’s not the only customer. … Europe is clearly a market for U.S. LNG exports as countries look to diversity their gas supply from Russia,” the report said.

Additionally, the Trump Administration may be in the midst of a trade spat with China but the administration is negotiating trade agreements with European countries that could benefit the U.S. LNG industry. Still, European LNG demand is dwarfed by that of China and while the threat of a trade war is still imminent, it’s likely that FIDs for new LNG terminals will continue to be tough to secure.

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