Instead of importing natural gas, the US is beginning to export it. The geopolitical fallout will stretch out over decades. “The world will never be the same again.”
In 2003, Houston-based Cheniere Energy decided to build a big terminal to import natural gas. It seemed like a good idea at the time. Domestic gas production was in decline, prices were high and the US faced shipping in large quantities of liquefied natural gas to meet rising demand.
That is not how things turned out. “We made the same mistake as others,” says Jean Abiteboul, Cheniere’s head of marketing. “We underestimated the magnitude of shale gas.”
As Cheniere built its LNG terminal, the oil industry was unlocking the vast reserves of gas trapped in dense shale rocks that stretch from Pennsylvania to Texas. Techniques such as “fracking” (hydraulic fracturing of the rock) and horizontal drilling triggered a production boom. Thanks to shale, the US in 2010 overtook Russia as the world’s largest gas producer.
With shale causing an unexpected supply glut in the US, Cheniere, which began life as a small oil explorer, took a radical decision: instead of importing LNG, it would export it. The volte-face highlights both the scale of a revolution that has transformed America’s energy outlook and how the repercussions of that boom are beginning to be felt far beyond the US.
Cheniere is one of a number of companies that plan to export surplus US gas – and at much lower prices than those set by other producers. For global energy markets, that is a change of potentially huge proportions. “This is going to have big implications for traditional exporters of gas,” says Fatih Birol, chief economist at the International Energy Agency, the west’s industry monitor. “All of them are worried. They have a competitor entering the market that produces gas at much lower cost.”
This development could recast a world gas trade long dominated by a handful of energy superpowers – countries including Russia, Qatar and Algeria. The pipelines that connect Russia’s west Siberian fields with consumers in Europe and the LNG tankers that ply their way from the Gulf and south-east Asia to Japan have created a network of dependency that has evolved over generations.
Those relationships are facing an unprecedented challenge. From the UK to Argentina, from South Africa to Mexico, countries are waking up to the potential value of domestic shale gas reserves. Suddenly, a new wave of gas producers looks set to emerge that could threaten the old oligopoly.