Recovering demand for liquefied natural gas (LNG) and the strongest spot LNG prices in more than half a decade are set to encourage more U.S. exports of LNG this year. The economics of U.S. LNG exports are looking attractive again, with the U.S. benchmark Henry Hub prices well below the spot prices in Asia, incentivizing additional exports out of the United States.
U.S. LNG export capacity rose in 2020 and is set to further increase this year, while high global prices this winter season and a quicker-than-expected recovery in global natural gas demand are driving a surge in U.S. exports of LNG.
American developers of export terminals are now optimistic about the market opportunities of their projects under development, with spot LNG prices much higher than last winter.
LNG Prices Hit Six-Year High
Last month, LNG spot prices for January delivery in Asia jumped to a six-year high as lower-than-normal temperatures in key LNG importers and continued growth in China’s industrial activity boosted demand. Spot LNG prices jumped to over $12 per million British thermal units (mmBtu) as a cold snap in parts of the major LNG importers Japan, China, and South Korea raised the demand for electricity and heating. The prices of LNG in Asia had recovered from less than $2/mmBtu in the spring of 2020 when the winter heating season had already ended, and the pandemic created a massive oversupply of LNG globally as lockdowns heavily depressed demand for natural gas. Recent unplanned supply issues at major exporters, including Qatar, Australia, and Norway, were also driving LNG prices higher.
At the start of 2021, a cold snap in Asia and Western Europe continued to drive natural gas and LNG prices higher, making U.S. LNG exports even more profitable.
U.S. LNG Exports Set New Record
American LNG exports are now set to beat the recent record from November 2020, when U.S. LNG outflows hit an all-time high due to recovering global gas demand and prices and unplanned outages at LNG export facilities outside the United States. According to EIA estimates, the United States exported a total of 9.4 billion cubic feet per day (Bcf/d) of LNG in November 2020, beating the previous record set in January 2020, when exports totaled 8.1 Bcf/d.
The rebound in Asian gas and LNG demand in recent months has changed the immediate outlook for U.S. exports, Ed Crooks, Vice-Chair, Americas, at Wood Mackenzie said last month.
In the spring of 2020, when demand for natural gas across the world plunged due to the pandemic, buyers began to cancel cargo loadings of U.S. LNG, as gas in storage from Europe to Asia was abundant after a milder winter and the coronavirus that wiped out a lot of previously expected demand.
“Now that position has reversed completely, with the rise in LNG prices driving a surge in US exports,” WoodMac’s Crooks said.
In 2020, the United States added capacity to export an additional 2 Bcf/d, with new trains at the Freeport, Cameron, and Corpus Christi plants entering service, and Elba Island starting full commercial operations.
“And with US Henry Hub benchmark gas down at around $2.60 per million BTU, the economics of exports look attractive again,” Crooks noted.
Feedgas deliveries to U.S. terminals hit new record highs and were running in December at about 11.2 bcf/d, easily surpassing the previous high point of 9.5 bcf/d in March, according to Wood Mackenzie.
Recovering Demand Encourages U.S. LNG Developers
Higher LNG prices and growing LNG demand, which is recovering from an early 2020 flop, instill confidence among developers of U.S. export projects along the U.S. Gulf Coast.
Venture Global LNG is ahead of its construction schedule for the Calcasieu Pass LNG export facility in Cameron Parish, Louisiana, while it also expects that cargoes from its second Louisiana project, Plaquemines LNG, will be fully contracted by the middle of 2021, Venture Global LNG’s chief executive Mike Sabel told Bloomberg TV in the middle of December.
Also in mid-December, Tellurian’s chairman Charif Souki said in a video posted by the company that the LNG market had become undersupplied in the latter part of 2020, and even European LNG prices are now at least $5/mmBtu for the whole of 2021.
“Structurally, Europe, instead of being a destination of last resort, has become a buyer in its own right,” Souki said.
The very high LNG prices globally are now structurally here for at least the winter seasons, Tellurian’s executive said.
“The value of our business proposition, providing very low-cost gas, is more evident than ever,” Souki noted.
Global exports of LNG could grow by 6-7 percent in 2021, according to the first Annual Short Term Gas Market Report 2020 of the Gas Exporting Countries Forum (GECF), an organization of countries representing 60 percent of the world’s LNG exports and including major gas exporters such as Russia and Qatar.
LNG Markets to Tighten In Medium Term
In 2020, a total of 2 Mtpa of new LNG capacity began operations for export to the global market, and all this capacity came from the United States. A total of 2.4 Mtpa of new LNG capacity globally are expected to begin operations in 2021, mostly from the United States, as well as from two projects from GECF members Russia and Malaysia, GECF said in its report.
“We expect the global LNG market to tighten between 2022 and 2024 as global demand continues to increase, while the growth in LNG supplies slows in the short to medium-term. The tightening of the LNG market is expected to support a recovery in prices during this period,” said GECF.
Growing LNG demand, higher prices, and increased export capacity are set to further boost U.S. exports of LNG in coming years.