An American gas super giant drives the integration of North America and Europe

Theodore Michael's picture
Theodore Michael, LNG Analyst, Genscape
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Image: Genscape’s visual camera confirms Asia Vision loading Cheniere’s first LNG cargo.

The recent departure of America’s first LNG export ushers in a new era. As LNG exports and US shale production reconfigure the North American grid, they will drive the integration of European gas networks and pave the way for the two continents to merge.

As shale gas flows south to the Gulf of Mexico, LNG exports to Europe’s regas infrastructure will push back the continent’s balance point displacing Russian molecules. Marcellus gas will flow east by back haul or flow displacement; into Central Europe and all the way to Russian border. Ukraine will use its massive storage fields to provide winter peaking service to Eastern Europe with gas produced in Ohio. The first wave of LNG from Qatar discharged at South Hook, flowing through the Bacton Interconnector, has pushed Europe’s balance point east to Germany. The next wave is larger. US exports will change the scope and scale of Europe’s global market integration. And the depth to which LNG can push into the heart of the Continent.

Vertical integration under the old oligopoly rules is done. The old partnerships to the East are in jeopardy. European security now turns on access to North America’s prolific shale fields. As balance points shift outward from the US to Europe, tracking the flow of molecules will bedrock market intelligence. Today’s merchant must track production flow to export terminals. Then monitor seaborne cargoes to Europe’s regas facilities.

The Balance Point Shifts: Centered in the North East and Upper Midwest, the Marcellus Utica Super Giant has captured the US industrial heartland and the major population centers in the East. With the potential to hit 300 bcma (30 bcf/d) in 2020, the giant shale complex has an estimated 150 bcma (15 bcf/d ) of gas drilled but shut in, awaiting higher prices. In addition, there are 150 bcma (15 bcf/d) of pipeline projects on the drawing board. Marcellus production flows will force Rockies gas back toward the Pacific Coast and is forcing GOM production back to Texas. Canada’s Alberta gas fields now look to the Pacific Rim and export to Asia.

Long haul pipelines such as Transco, ANR and NGPL, that once brought Texas gas north to industrial and population centers, are now reversing. All of these transcontinental pipes have one factor in common. Their production basins are redirecting to meet LNG export demand. As they change direction the “Transcos” have begun to sprout east to west laterals such as the Gulf Trace feeding Cheniere Sabine; and its western extension the Gulf Connector, feeding supplies to the giant Freeport and Corpus Christi LNG facilities; currently under construction.

Genscape’s infrared image of Chenire’s Sabine Train 1 during commissioning process.

 

As Europe’s supply teams look west to source, the east will shrink in importance. As commercial focus swings to GOM exports, buyers will focus on the long haul trunklines crossing North America rather than the pipe from Siberia or Central Asia. Ukraine may become more valuable for its storage and its transit lines may carry gas from the Appalachia’s rather than Siberia. Just as the Marcellus Utica Super Giant has pushed back supply from the Rockies and Canada forcing these basins to look to Asia, Russia must look to the east for paths to expansion.

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US LNG coming into Europe is an important topic for this year’s European Autumn Gas Conference, which takes place in The Hague, 15-17 November 2016. Find out more about the event. 

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