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LNG’s Struggles Amplified by COVID-19

Liquefied natural gas (LNG) exports have not been spared from COVID-19’s fallout. Efforts to stop the spread of the disease have caused importers and exporters to redraft business deals and halt capital projects, dramatically changing supply and demand ratios for LNG.

The United States became a net exporter of natural gas in 2017, for the first time in nearly sixty years, and a net exporter of total energy in 2019, a first in sixty-seven years. In 2019, the United States exported 4.7 quads, which is equated to approximately 12.8 bcf/d of natural gas, a 29 percent rise from 2018. LNG exports play a major role in this achievement. The shale boom of 2012 sparked the nation’s reversal, with an abundance of domestic gas fulfilling demand previously supplied by foreign suppliers. As a result of the surplus, exporters began moving LNG from the U.S. to Canada and Mexico via pipeline and tankers began hauling the commodity from ports on the Gulf Coast to foreign markets in Europe and Asia. The growth has continued since 2017, with gas exports for the first half of 2019 doubling that of 2018.

In recent months, LNG exports have felt the same squeeze as the rest of the industry. Low prices for gas and low demand have caused stockpiles to grow, leaving gas companies strapped for cash while sitting on their supply.

The coronavirus outbreak only worsened these existing conditions and created new unforeseen issues. As states implemented stay-at-home orders for citizens, demand for gas only continued to fall, adding to the volatility of the market. Additionally, contracts between exporters and importers were amended or thrown out altogether, as long-term outlooks for gas fluctuate daily.

Social distancing has created its own trouble for contract negotiation, as heads of companies are unable to meet in-person to discuss the finer details of complex business agreements that they are otherwise unwilling to engage in virtually. The pandemic has also caused a resurgence in protests to stop work on major LNG projects globally, citing fears of person-to-person spread of the disease among laborers.

Coronavirus is not the smoking gun to blame for the gas market’s decline. Though the pandemic has and most likely will cause complications that will require innovative solutions, industry leaders have commented that COVID-19 has only “slightly exacerbated” the challenges facing the industry.

The pandemic has caused an unforeseen strain on the already struggling natural gas industry. However, this break in life as we know it could spark discussions domestically and abroad about the need for sustainable energy sources, with natural gas leading the discussion. For now, it is unclear how the pandemic will change the industry in the future, but fundamental issues will need to be identified and addressed for any long-term solutions to be developed.

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