Where is US shale gas industry headed? Can it fulfil LNG promise to EU? 

Highlights

• The US, which is the world’s largest producer of shale gas, intends to become the world's largest exporter of LNG by the end of 2022.
• Shale gas is natural gas (primarily consisting of methane) produced from shale formations with the help of fracking.
• The US administration plans to send more gas to Europe to help reduce the region’s energy dependency on Russia.

US President Joe Biden and European leaders recently reached an agreement aimed at reducing Europe's dependence on Russian fossil fuels. As part of the deal, the US government will supply more gas to EU nations.

The US administration has promised to supply 15 billion cubic metres of LNG this year to the EU. Moreover, the US plans to meet their carbon emission goals by powering gas infrastructure with green energy and reducing methane leaks.

Meanwhile, the Biden administration is eyeing more production from the shale industry to counter high crude oil prices. The administration has asked them to do ‘whatever it takes’ to increase the supply. The state department also rubbished industry claims that the government’s policy is holding back shale drilling, which is creating roadblocks to increase the production.

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It seems that the US government is trying to tackle high fuel prices as well as extend support to Europe’s energy crisis through shale oil & gas. Shale oil & gas is normal or conventional hydrocarbon found in shale or tight formations. Normally hydrocarbon is produced from sandstone or carbonate reservoirs.

Shale formations are not as thick as sandstone or carbonate. Since formations are tightly packed, additional permeability is created using hydraulic fracturing (fracking) operations. Fracking requires specialised chemicals and uses a lot of water to widen the fissures in shale formations. Sometimes, the process might even pollute groundwater.

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As there have been environmental issues due to fracking, restrictions or bans on the process are in place in various parts of the world.

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Is US prepared to fulfil its promise to the EU?

Data from the Energy Information Administration (EIA) shows that the production of shale gas increased substantially in the US between 2015 and 2020. In 2015, total production stood at 15,213 Bcf, which rose to 26,139 Bcf in 2020 – representing more than 70% increase in annual production.

Gross natural gas production in 2020 for the US was ~40,800Bcf. Nearly 64% of all natural gas produced in the US was shale gas. EIA data also revealed that shale gas production continued to surge and surpassed 75Bcf/d in 2021, which is roughly 27,500 Bcf annually.

The biggest hurdle in increasing natural gas production further is the country’s LNG production capacity. Natural gas is either transported through pipelines or LNG tankers to the market. If the US is to send more of its gas to Europe, the most feasible option is LNG. LNG is nothing but cryogenically compressed natural gas. Methane is compressed nearly 600 times under super cool temperatures for conversion into LNG.

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This is done to ship huge volumes through ship tankers. To convert natural gas into LNG, a liquefaction facility is required.

The US is currently the third largest LNG exporter after Australia and Qatar. The US’ current nameplate capacity of LNG liquefaction stands at 9.5Bcf/d with a peak capacity of 11.6Bcf/d. The nominal capacity is expected to increase up to 11.4Bcf/d and peak capacity to 13.9Bcf/d by the end of 2022 when Train 6 at Sabine Pass LNG export facility and Calcasieu Pass LNG facility become operational.

Also, the Golden Pass LNG facility, which is planned to become operational by 2024, will further boost export capacity to 16.3Bcf/d.

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The year-on year rise in shale gas production by the US reflects increased activity in the sector. The US is enhancing its LNG capacity to become the top LNG exporter by overtaking Australia, which recorded LNG exports of around 77Mt and nameplate capacity of around 88Mt in 2021. Australian players made an investment of around AU$16.5 million in 2021 to boost the production, which is highest in the decade. Given the current energy market dynamics, it will be interesting to watch who gains the highest share of the lucrative European gas market.