US Needs to Ramp Up LNG Production to Satisfy Trade Deals

Countries are cutting trade deals with President Donald Trump by pledging to buy more American energy, and it’s likely most of these additional purchases will be of liquefied natural gas.

If those promises turn into contracts, the US — already the world’s biggest LNG exporter — will need to drastically ramp up shipments of the super-chilled fuel.

Three of the most notable pledges came from Seoul, Brussels and Kuala Lumpur. Washington said last week that South Korea would buy $100 billion of American LNG over 3 1/2 years.

The European Union promised earlier to purchase $750 billion of US energy, and Malaysia committed to taking $3.4 billion worth of gas a year.

But here’s the thing: most LNG is tied up in long-term contracts. That means there’s not a lot of spare supply to be redirected to new buyers.

Yes, some cargoes can be flipped to take advantage of better prices in different regions, but that only goes so far, making pledges to buy that much energy in just three years or so tough to meet.

One potential scenario is a new wave of extended contracts: think 20-year agreements for millions of tons of LNG, mostly from plants that won’t even start producing until later this decade or into the 2030s.

And because much of the export capacity under construction is already spoken for, any new demand will have to be met by projects still on the drawing board.

Let’s run the numbers. It’s unlikely that all the energy-buying pledges will be spent on LNG. But if they are, the deals need to lock in a lot of supply for a long time.

Depending on how the contracts are priced, that could mean committing to buy more than 120 million tons of LNG over 20 years. For context, that would require the US to roughly triple its exports — not just double, as current plans anticipate by decade’s end.

Of course, all this hinges on whether buyers actually follow through. The headlines are already written, and Trump may not bother checking if anyone holds up their end of the bargain.

But if those deals are realized, expect an even bigger US LNG boom in the 2030s.

–Stephen Stapczynski, Bloomberg News