In July, U.S. Energy Secretary Rick Perry visited Houston to touch base with a small group of independents. He told them that if energy is going to be used as a weapon by some (read Russia, OPEC), then the U.S. energy arsenal should be the biggest one around.

That’s one reason why he and President Trump want the U.S. to achieve energy dominance in world markets, with continued exports of oil, natural gas and LNG.

A deal between the U.S. and China thus sounds like a match made in heaven. Because China faces pressure to wean itself from coal-fired power, it needs more natural gas. Last year China’s LNG demand rose 47% to reach 37.8 million tons per annum (mtpa) in 2017.

But, the tit-for-tat trade war unfolding now threatens the ambitions of these two countries. Oil and gas producers and midstream players could be caught in the middle, as will industries and citizens in these countries who will suffer collateral damage, paying more for energy if free trade is somehow stifled.

U.S. oil, gas and pipeline companies that need foreign steel supply will pay more—or they will pay more for domestic steel in its place. Already supply chains are being disrupted. On its second-quarter conference call, Plains All American Pipeline LP said its capex would increase by about $100 million due to higher steel tariffs affecting the steel it needs for pipelines under construction.

If China decides to levy a tariff against U.S. oil or LNG, then we have a real problem.

“A fuel clash between the U.S. and China is a sharp turnaround from last year, when Trump’s visit to Beijing included pledges by state-run companies to support U.S. export projects,” a Bloomberg report said. “China National Petroleum Corp. [has] signed a 25-year deal to buy U.S. LNG, with some of that supply expected to start this year.”

Similarly, we have a large LNG trade with Mexico, which had received 22 U.S. cargoes from January through August. Mexico accounted for 19% of our LNG exports in 2017, ranking it as our main buyer, said Matthew Hong, director of research for gas and power at Morningstar.

But these stats could be affected depending on how the NAFTA negotiations conclude. In December Mexico’s new president takes office, another wildcard.

The global LNG market will require roughly 25 to 30 mtpa per year in new capacity additions to 2025, according to a recent Bernstein report. “We believe 60 mtpa needs to be sanctioned by 2020, and a further 100-plus mtpa between 2020 and 2025, to ensure markets are adequately supplied,” Bernstein’s Neil Beveridge said.

Problem is, few new LNG projects are being sanctioned. He foresees “a tightening of the global LNG markets in the early 2020s. Only 5 mtpa of new projects were sanctioned in 2017 and 4.5 mtpa so far in 2018.”

Global LNG demand in 2017 was about 40 Bcf/d. The Permian Basin could supply another 5.3 Bcf/d by 2020; the Eagle Ford could add another 1.8 Bcf/d, not to mention the Northeast gas plays.

Raymond James projects growth in the U.S. of 7 Bcf/d this year and 6 Bcf/d in 2019.

The latest data show that as of April, U.S. gas production was 9.3 Bcf/d higher than the same period last year. Lower 48 production now stands at about 89 Bcf/d.

Since Dominion Energy Inc.’s Cove Point plant in Maryland just began exporting in April, it’s sent out about 20 LNG cargoes. It has long-term sales contracts with GAIL India and a joint venture with Sumitomo and Tokyo Gas.

Meanwhile, getting Texas oil and gas to the coast is tops on the industry’s list of action items. Most recently, Targa Resources Corp., NextEra Energy Inc. and Marathon Petroleum Corp.’s pipeline unit, MPLX, said they’ve joined to build a 600-mile pipeline for moving 2 Bcf/d from the Permian to the Gulf Coast. It’s expected to come online by late 2020.

Then too, there is plenty of competition in the export game. Qatar, the world’s largest LNG exporter, said it will expand capacity by a third to be able to ship 108 mtpa by 2023, so the race is on. In Australia, Japan’s Inpex Corp. planned to begin shipping LNG from its Ichthys project offshore Western Australia by the end of September.

Global gas supply is growing faster than anticipated while LNG demand is expanding, but more slowly than forecast due to infrastructure bottlenecks in permitting and financing, and construction delays.

Where elephants stomp, the mice underfoot get hurt.

Three of our conferences this fall will spotlight the growth in oil and gas supply. We hope to see you at DUG Eagle Ford in San Antonio Sept. 19-21, where we’ll also present an exports forum in addition to traditional DUG content. On Oct. 22 and 23, join us in Dallas for our new Midstream Finance conference to learn more about how the midstream sector will handle rising U.S. output. Finally, at our annual Executive Oil Conference in Midland, Nov. 5-7, you’ll hear from leading Permian Basin producers.

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