U.S. LNG Trade Rising, But No Domestic Shipping

U.S. LNG Trade Rising, But No Domestic Shipping

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May 4, 2018
U.S. LNG Trade Rising, But No Domestic Shipping
As U.S. natural gas production sets new records, trade in
Sources: Estimated by CRS based on Department of Energy (DOE)
liquefied natural gas (LNG) has risen sharply. Since 2016,
and Federal Energy Regulatory Commission (FERC) information. See
when the first plant in the lower 48 states to cool gas to
https://www.energy.gov/sites/prod/files/2018/04/f50/Summary%20of%
minus 260ºF for export opened in Louisiana, the United
20LNG%20Export%20Applications_0.pdf, and https://www.ferc.gov/
States has exported LNG by ship to 27 countries. The
industries/gas.asp.
inauguration of a second liquefaction facility in Lusby, MD,
in April 2018, portends a further increase in LNG exports.
Notes: LNG projects in Alaska are not included in this table as they
are subject to different market conditions. The table includes small
Yet despite abundant gas supplies and a growing volume of
quantities of LNG exported in shipping containers by American LNG
LNG exports, the United States continues to import LNG as
Marketing, mainly to the Bahamas and Barbados. Capacity data are
well. Imports, including the January arrival of a shipment
mainly from DOE, which may differ from FERC data, and in some
containing Russian gas to Boston, persist in part because
cases are rounded.
there is negligible domestic trade in LNG. The lack of U.S.-
built LNG tankers, a legal requirement in order to move
LNG Imports: Key for New England
LNG domestically by sea, may be encouraging the use of
U.S. natural gas imports by pipeline and LNG were 8.3
imported rather than domestic gas in some locations.
BCF/D (12% of U.S. consumption) in 2017. Although
almost all U.S. natural gas imports (97%) come by pipeline,
LNG Export Expansion
LNG remains an important source of supply for the Boston
In 2017, the United States became a net exporter of natural
area, which is not adequately served by transmission
gas for the first time since 1957, according to the U.S.
pipelines from gas-producing areas. The Everett LNG
Energy Information Administration (EIA). Total exports,
Terminal, which is the only facility in the continental
pipeline and LNG, were 8.7 billion cubic feet per day
United States receiving regular LNG cargoes, imports
(BCF/D), or 12% of production. Most of these exports
almost all its LNG from Trinidad and Tobago. Once
(78%) move to Mexico and Canada by pipeline. Exports by
unloaded, the LNG is regasified and put into the gas
ship require that the gas be liquefied, which in turn
distribution system.
necessitates construction of extremely expensive
liquefaction plants. Most U.S. LNG exports, so far, have
Despite importing relatively small amounts of natural gas
gone to Mexico, South Korea, and China.
compared to overall U.S. consumption, the Everett LNG
import terminal and its owner, the French energy group
Alongside the Louisiana facility and the new facility in
Engie, caused a controversy earlier this year when it
Maryland, three other LNG export facilities may begin
reportedly imported an LNG cargo containing at least some
operations in 2018, with a combined capacity of 4.62
natural gas from Russia’s Yamal LNG project. Yamal LNG
(BCF/D (Table 1)). If these open on schedule, U.S. export
is primarily owned by the Russian energy company
capacity could be more than 8 BCF/D of LNG. All told,
Novatek, which is subject to U.S. sanctions, although
exports are likely to absorb 11% of U.S. gas production by
natural gas shipments are not. The United States has never
year end. Additional facilities under development could
before imported natural gas from Russia, and the shipment
enable the United States to supplant Australia and Qatar as
raised the question of why all domestically produced
the top LNG exporter within a few years.
natural gas, shipped either by pipeline or as LNG, was not
used.
Table 1. Aggregate Status of U.S. LNG Export
Facilities
Natural gas pipelines into New England have faced
Combined
challenges. Opposition groups have been effective in
Capacity
blocking or delaying the permitting of pipelines that would
Stage
(BCF/D)
Status
bring additional volumes of natural gas into New England,
or which would generally increase gas transportation
Operating
3.54
Exporting
capacity in the Northeast market. The main arguments
Under Construction
4.62
Due online 2018
against these pipeline projects include opposition to the
extraction and burning of fossil fuels due to climate change

3.54
Online post-2018
concerns, possible water contamination from hydraulic
fracturing, overdependence on one fuel for electric power
Small Scale
0.28
DOE Approved
generation, and local construction impacts.
Permitted, but Not
6.79
DOE and FERC
Under Construction
approved
There is currently less opposition to the import of LNG.
The Everett LNG import terminal has been operating since
Proposed
38.14
Permits pending
1971. It supplies about 20% of the regional market demand
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U.S. LNG Trade Rising, But No Domestic Shipping
for natural gas. There is also a second operational import
substantially more than foreign crews. The non-availability
terminal near Boston, Excelerate’s Northeast Gateway
of U.S.-built ships and the higher costs have led U.S. gas
Deepwater Port, which is mainly used to meet demand
consumers to rely on pipelines or LNG importation for
spikes. It has not received a cargo since 2016. A third
natural gas supply.
facility, Neptune LNG, now owned by Engie, suspended
operations in 2013; in 2017 it applied for decommissioning,
The effects of the restriction on transporting LNG from one
which is in process. Its floating storage and regasification
U.S. port to another is not limited to the Boston area.
unit (FSRU) has already been moved to Turkey.
Hawaii usually has among the highest price for natural gas
of any state. Developers have not built a large LNG import
Natural Gas Prices
terminal in Hawaii, but since 2014, the state has received
Due to natural gas infrastructure constraints, gas users in
LNG in cryogenic shipping containers from California.
Massachusetts (and other New England states) tend to pay
These are truckload-sized containers shipped on
higher prices than gas consumers in most of the rest of the
conventional container ships. Puerto Rico, which does have
country (Figure 1).
an LNG import terminal, imports most of its LNG from
Trinidad and Tobago. It also receives smaller volumes in
Figure 1. Comparison of Select U.S. Gas Prices
containers from the United States. Even though Hawaii and
2016-2018
Puerto Rico are in proximity to shipping routes for U.S.
LNG exports, neither has been able to fully benefit from the
large increase in U.S. natural gas production or the new
liquefaction facilities, in part because of the Jones Act.
Jones Act Waivers Are Possible
Congress enacted a provision (46 U.S.C. §501) waiving the
Jones Act for national defense when no or insufficient
Jones Act qualified vessels are available. This provision has
generally been used in the aftermath of hurricanes to speed
fuel transport if overland transport is limited. The rationale
is that a region without essential supplies creates a defense
vulnerability. Waivers have also been used to expedite oil
shipments from the Strategic Petroleum Reserve. As a
possible model for LNG shipments between U.S. ports,
Source: EIA, https://www.eia.gov/naturalgas/data.php#prices.
Congress has waived the Jones Act to allow foreign-flag
Notes: Citygate (US and MA) is the price of natural gas where it
cruise ships to sail between any U.S. port and Puerto Rico
transfers from a transmission system to a distribution system. Spot
(46 U.S.C. §55104) because no U.S. cruise lines have
price is a one-time market transaction at current market rates. MA
offered this service and thus none are harmed by the
LNG refers to the import price at the Everett terminal. Units =
waiver.
nominal dollars per million British thermal unit.
In 2011 (P.L. 112-61), Congress allowed three U.S.-built
Figure 1 shows prices in Massachusetts usually peak in the
LNG tankers to re-enter the Jones Act trade after they had
summer months leading into fall. However, this year,
become ineligible for sailing under a foreign-flag. None of
Massachusetts faced a price spike in January, which led to
the ships re-entered, and all are now 40 years old. In 1996
the importation of the Russian LNG cargo. In the future, the
(P.L. 104-324), Congress allowed certain foreign-flagged or
new Maryland LNG terminal, which is some 700 nautical
foreign-built tankers not eligible under the Jones Act to
miles from Boston, could potentially be used to supply the
transport LNG to Puerto Rico from any other U.S. port, but
New England market in similar circumstances. However,
these ships have not done so. Puerto Rico completed its
U.S. law governing domestic shipping may make such
LNG import terminal in 2000. In the aftermath of Hurricane
shipments economically impractical.
Maria, which caused extensive damage to Puerto Rico in
September 2017, legislation was introduced in the 115th
The Jones Act and LNG
Congress (H.R. 3966 and S. 1894) that would exempt
Currently, U.S. law restricts vessels that may carry
Puerto Rico from the Jones Act. Additionally, H.R. 1240
domestic shipments, including LNG. The Merchant Marine
has again been introduced, which would require a portion of
Act of 1920, commonly referred to as the Jones Act,
U.S. LNG exports to be transported on U.S.-crewed
requires that any vessel transporting cargo between U.S.
and -owned tankers. It would also require that LNG
points be built in the United States, be mostly U.S.-crewed,
exporters provide training opportunities for U.S. mariners
and be at least 75% U.S.-owned. Currently, there are no
to become credentialed to work on LNG vessels.
Jones Act-qualified LNG tankers, and the United States has
not built one in almost 40 years. Other types of oceangoing
Michael Ratner, Specialist in Energy Policy
ships built in the United States cost between three and five
John Frittelli, Specialist in Transportation Policy
times more to construct than foreign-built ships of similar
size. U.S. shipyards do not build ships for export so
IF10878
economies of scale are lacking. U.S. crews also cost

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U.S. LNG Trade Rising, But No Domestic Shipping

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