The Great American LNG Comeback

After a record 2019, it has been a rocky ride through the pandemic for the US LNG export business.

Sunken prices and demand globally have shrunk our shipments abroad. In January, exports were up over nine billion cubic feet per day (Bcf/d) before steadily falling to 2.5 Bcf/d at the end of August, with facility utilisation bottoming out at 20 percent.

From April to November, there were nearly 180 cargo cancellations, and RBN Energy estimates that a whopping 550 Bcf of gas was pushed back into the US market in summer alone.

But US LNG exports have been picking up in recent weeks, as the figure in this article shows. Asian prices have been rising quickly amid rebounding demand and forecasts of a frigid winter.

Even through hurricane-related shut-ins in our shipment zone along the Gulf of Mexico, US LNG demand has been at record levels of over ten Bcf/d in recent weeks. All six of our facilities have been online.

With Covid-related lockdowns in Europe, the Asian market remains the bright spot. Buying has remained steady to support the Japan/Korea Marker price trading above US$7.00 per MMBtu, up from below US$2.00 back in May and opening arbitrage opportunities for US sellers.

This rebound has been made all the more impressive since global oil prices have remained low (approximately US$42), normally giving a leg up to competitors that index their LNG prices to crude.

Latest US Energy Information Administration (EIA) data for August had Japan (21 percent), South Korea (13 percent), China (13 percent) and India (9 percent) taking the bulk of US sales.

Indeed, this pandemic down year must be recognised as the anomaly which it is. Looking forward, global LNG market balance should be restored in 2021 as rising demand collides with slower supply growth.

The long-term fundamentals remain strong. In February, Shell’s LNG Outlook 2020 had global consumption doubling by 2040 to around 100 Bcf/d. LNG is the largest incremental market for US natural gas.

For US producers and shippers, sustainability will be key, especially for selling into Europe.

Importantly, the French government recently delayed a US$7 billion US LNG deal with Engie over worries about leaked methane emissions from this “fracked” shale gas. But there is US bipartisan support to stop these leaks, with many in the industry also pushing for more oversight. After all, methane is a product so such fugitive emissions are lost income.

And it must go mentioned that LNG is a critical part of the net-zero goals for carbon, especially important for lowering the overreliance on higher emission coal in Asia. Net-zero carbon BP, for instance, plans to double its LNG portfolio by 2030. Total just delivered a net-zero LNG cargo to China, offset with Verified Carbon Standards emissions certificates financing a wind farm and a forest project.

Hugely populated nations like India, Pakistan and Bangladesh also want more low-cost US LNG. And these nations are horrifically energy-deprived, so they are unlikely to restrict options much for decades to come. They realise the “only wind, only solar” Western push as unrealistic and hypocritical.

US developers are looking at shorter and more flexible contract terms to help these key buyers gain commercial support for new import terminals.

There are other reasons to go bullish on US LNG. The Trump administration has been extending authorisations through 2050. A potential Biden administration could also lower trade tensions with China and increase access to the world’s largest importing market.

Cheniere just announced a framework agreement to sell China’s Foran Energy Group 26 LNG cargoes from 2021 to 2025.  We are also becoming the world’s swing supplier.

With domestic gas production expected to outpace demand by a 2-1 margin, US selling options abroad should remain strong. The US Department of Energy forecasts that domestic gas prices will stay below US$3.70 through 2050.

The Federal Energy Regulatory Commission reports some 50 Bcf/d of capacity now under consideration.

And with an immense low-cost proven reserves base of at least 500 trillion cubic feet, the US is still on pace to become the premier exporter within three to five years, passing Qatar and Australia.

Source: Rigzone