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Page added on February 10, 2016
The US enters a brave new world as it begins LNG exports
Next month, the US is set to export its first cargo of LNG from the continental US. Cheniere Energy, the company that won the highly-contentious race to be the first exporter out of the gate, will have some advantages over its US peers, but the global LNG landscape has changed significantly since the company first proposed to build its LNG export terminal over a half-decade ago.
Before diving into the current state of the world LNG market, let’s take a step back and see how we got to where we are today.
The beginning
In 2001, Cheniere Energy made an announcement to build four LNG import terminals in Louisiana, at a cost of $1.2 billion. As Charif Souki, Cheniere’s CEO at the time, hit the road to raise money, he told investors a simple message: The US is addicted to natural gas and we are running out of it. Therefore, we must import natural gas via LNG from abroad. After seven years, Souki and Cheniere’s vision became a reality, with the inauguration the Sabine Pass LNG import facility in April 2008.
But between 2001 and 2008, the forecast for US natural gas went from gas shortages to gas gluts. Showing off a sparkling new, state of the art LNG import facility, Cheniere was literally trying to sell natural gas into a sufficiently supplied market. It was like trying to sell ice in the North Pole or chocolate to someone in Hershey, Pennsylvania.
Cheniere then set out to do the complete opposite of what the planned to do a decade ago: export LNG. In September 2010, Cheniere was the first company to apply with the US Department of Energy for a permit to export LNG.
The art of a deal
By late 2011, Souki managed to work out a deal for Cheniere to sell $8 billion of LNG over 20 years to BG Group, which is now owned by Shell. In a nutshell, Souki’s pitch was this: US natural gas prices are forecast to stay low because of the abundance of newly-accessible shale gas resources, while natural gas and LNG prices are expected to remain high in Asia.
Why was Cheniere so confident that LNG prices were going to stay high in Asia? At the time, nearly all LNG prices in Asia were linked to oil.
This value proposition was successful, as Cheniere has been able to sell 80% of their LNG export capacity at Sabine Pass under take-or-pay contracts.
The sober start to 2016
Fast-forward to 2016. Cheniere is expected to export its first cargo of LNG out of Sabine Pass this March. As Cheniere, along with other hopeful LNG exporters, know all too well, market dynamics never stay constant and volatility is the name of the game. Commodities are cyclical. When Cheniere and other companies decided to build multi-billion dollar LNG export terminals, there was a large price difference between gas prices in the US and Asia.
For example, the average price for a spot cargo of gas in Asia in 2011, using the Japan-Korea Marker, JKM, was $14.02/MMBtu. A key reason prices spiked was the Fukushima nuclear disaster, which occurred in March 2011, leading Japan to shut 47.5 GW of nuclear generation capacity.
As new LNG facilities came online, prices have faced downward pressure. In 2015, the average JKM price was $7.45/MMBtu, and as of Feb. 3, the average price this year has been $5.73/MMBtu.
Awash in LNG
So how did we get to where we are today? Put simply, demand has recently failed to keep up with supply. Platts unit Eclipse Energy Group data shows global gas demand growth was insignificant in 2015, rising by a mere 700 MMcf/d, while at the same time roughly 2.2 Bcf/d of new export capacity was added. Over the next five years, total global export capacity is expected to grow by an exceptional 133.5 mtpa (17.8 Bcf/d), a 44% increase.
The US as a global swing supplier
Eclipse data shows that by 2020 the US will have become home to 15% of global liquefaction capacity and could become the world’s third largest exporter (behind Australia and Qatar). And due to the inherent flexibility of US LNG tolling agreements, American exporters have a good chance of becoming a swing supplier. Unlike other LNG contracts, US LNG tolling agreements do not have fixed destination clauses, allowing US-sourced LNG cargoes to show greater optionality in spot markets.
The balance between global LNG demand growth and global LNG supply will be the two key variables in determining how quickly and to what extent American LNG plays a role in the global market of the future. Another key factor will be the price of US natural gas. Platts Analytics forecasts Henry Hub spot prices averaging $2.45/MMBtu in 2016 and increasing to $4.19/MMBtu in 2020.
Even though it appears to be a buyer’s market for now, the US is quickly becoming ready for when the tide turns. At this point, the world will find out just how capable the US can be in the LNG market. For now though, at least they can say something that they weren’t able to say a year ago: We are ready to play.
33 Comments on "The US enters a brave new world as it begins LNG exports"
makati1 on Wed, 10th Feb 2016 5:34 am
I couldn’t stop laughing at the headline long enough to read the article…
rockman on Wed, 10th Feb 2016 6:24 am
mak – So true. Here’s an even funnier piece from the The Telegraph last April:
”
The United States is poised to flood world markets with once-unthinkable quantities of liquefied natural gas as soon as this year, profoundly changing the geo-politics of global energy and posing a major threat to Russian gas dominance in Europe.
“We anticipate becoming big players, and I think we’ll have a big impact,” said the Ernest Moniz, the US Energy Secretary. “We’re going to influence the whole global LNG market.” Mr Moniz said four LNG export terminals are under construction and the first wave of shipments may begin before the end of this year or in early 2016 at the latest.”
Of course, no problem for a net NG importer to become a “big player” in the LNG export game. LOL. The good news for the countries that export NG to the US is that for ever mcf of LNG we export they get to sell the US an mcf of NG.
Ralph on Wed, 10th Feb 2016 7:09 am
Surely for each mcf of LNG exported, the US imports 1.3 mcf of NG, to cover the energy required for liquefaction?
JuanP on Wed, 10th Feb 2016 7:15 am
These are the things about capitalism I could never understand! Does it make economic sense to build LNG exporting plants in the USA? I don’t think so, but who am I to argue with the billionaires investing in this crap.
As pointed out above, the USA is a net NG importer. IMO, the USA will never become a net NG exporter, not if we still have an economy left at least, even if it has become a Third World economy.
I think the USA should build dozens more of these LNG exporting plants since they so obviously benefit the American people so much. Can’t you feel your life getting better? I live in the USA and it is transparently clear to me that this country has been getting better for decades.
Our future is bright! Go get your, or someone else’s, woman pregnant now! We need more Americans to spread this overflowing wealth! Long live the USA! The more American babies we have now, the easier it will be for the USA to spread freedom and democracy around the world in the future. We need more Navy Seals! We don’t have enough torturers, rapists, murderers and assasins in this country yet to dominate and control the whole world, so I want to beg all the men in America to go get laid and get an American woman pregnant today.
Uncle Sam Needs YOU and your babies!
ghung on Wed, 10th Feb 2016 7:32 am
The Platts link not working for me. Try this:
http://blogs.platts.com/2016/02/10/us-brave-new-world-lng-exports/
Comments are open, but moderated.
curlyq3 on Wed, 10th Feb 2016 8:13 am
Howdy JuanP … I had a vasectomy years ago, but I don’t mind pretending !!
curlyq3
twocats on Wed, 10th Feb 2016 10:11 am
Reading this article must be what coming off cocaine feels like it just gets more and more depressing, but, there’s always hope for another trip.
At least Cheniere locked in most of those prices at the high levels. Their stock price, although way way down is still more than double what is was in late 2011 (when the deal was made). Shell – not so much.
Plantagenet on Wed, 10th Feb 2016 11:55 am
The explanation for US NG exports is pretty simple. NG costs several times as much in the EU as it does in the USA. Its really no surprise that US NG producers plan to export US NG to the EU, where they will get higher prices for the NG and make more money.
Cheers!
Boat on Wed, 10th Feb 2016 11:58 am
In the northeast there are around 50 pipeline projects in the works. 5 more pipeline projects to Mexico will complete in 2016-2017.
The US Nat gas market has grown 40% since fracking took off. Exports will continue to grow quickly.
What the doomers will learn is the exports will come from the US not Canada. Canada has a kinda locked in export market already built because the infrastructure is already built. They simply have to drop the price to keep it.
buddavis on Wed, 10th Feb 2016 12:44 pm
Juan
The great thing about capitalism (true capitalism) is not that people do not make mistakes. It is that they are punished for their mistakes. Compare what happens when a governmental agency screws up and who is held accountable vs a private company screws up and who is held accountable.
Apneaman on Wed, 10th Feb 2016 1:49 pm
Brave new world for sure.
Warming World Spreads a Wider Welcome Mat for Zika-Carrying Mosquitoes
The Aedes aegypti mosquito thrives in warm, wet conditions, which are spreading northward, even into central California, because of climate change.
http://insideclimatenews.org/news/08022016/warming-world-spreads-wider-welcome-mat-zika-virus-carrying-mosquitoes-climate-change
Record-Breaking Temperatures Hit Southern California
http://losangeles.cbslocal.com/2016/02/09/wind-advisory-record-high-temps/
Plantagenet on Wed, 10th Feb 2016 1:50 pm
@buddavis
The great thing about capitalism isn’t that people are punished for their mistakes—-its that people are rewarded for their successes.
If you are one of the smart ones who can invent something, make something, sell something, heal something, program something, teach something, , sing something, be something, etc. etc. then you will do very well under capitalism.
Cheers!
Pennsyguy on Wed, 10th Feb 2016 1:55 pm
“U.S. enters a brave new world–” I love unintended irony! But seriously, we have enough natural gas to be energy self-sufficient by 1984. That’s doubleplus good!
Apneaman on Wed, 10th Feb 2016 2:08 pm
Planty, like Goldman Sachs or GM and the rest of the massive list of bailed out, subsidized, picked winners who never see prison no matter how egregious their crimes? Go back to your hidey hole in the forum dumb cunt.
Truth Has A Liberal Bias on Wed, 10th Feb 2016 2:17 pm
If you’re bored and you feel like reading the words of a moron as he attempts to claim he empirically confirmed the Etp model check out this link.
http://www.sciforums.com/threads/the-etp-model-has-been-empirically-confirmed.152487/
Considering his math skills, or rather lack thereof, I’m surprised Futilitist can empirically prove he has a mom and a dad. I don’t think he knows what entropy and thermodynamics mean either. Perhaps he thinks that if he says it enough people will think he’s smart.
Truth Has A Liberal Bias on Wed, 10th Feb 2016 2:30 pm
Is short ever gonna publish his Etp model for peer review or do we still gotta buy it?
Plantagenet on Wed, 10th Feb 2016 2:32 pm
@apey
Don’t blame me because obama bailed out Goldman Sach and GM and other dinosaur companies. He’s your guy—not mine. I saw way back in 2008 that he was a creature of Wall Street who was going to do Wall street’s bidding once in office, while you still haven’t figured it out, I see.
Cheers!
Boat on Wed, 10th Feb 2016 2:41 pm
Plant,
The government made 10% on those bailout loans. Freddie Mac and Fannie Mae alone have returned 40 billion more than than the bailout. Plant is good on glut, not so good on Obama.
Plantagenet on Wed, 10th Feb 2016 2:56 pm
Boat is good on economics, not so good on Plant
Cheers!
Anonymous on Wed, 10th Feb 2016 3:51 pm
How can a country that is a net importer, flood the world with gas? I know what ‘net’ means, and I know what ‘importer’ means, and I know what they mean together. Clearly, a lot of americants do not. Now its a true a net importer can still send stuff out of a country at any given time, no law or rule saying that cant happen. What cant happen, is a perpetual net importer, can magically become a net exporter by simply asserting it to be true.(its not)
Well, even that’s not strictly true, if demand destruction in the ‘homeland’ fell so far that there actually was physical surplus over demand, well, sure would work too. But first, the uS would completely need to DD all the gas it currently siphons from its canadian, Mexican energy colonies. Then, once that happened, further demand would need to be permanently destroyed in the Phewnited snakes itself, to allow surplus levels sufficient to be called, the us, an ‘exporter’.
Of course, that would mean the us economy had shrunk to fraction of it current level really, and no one could to burn(waste) NG at the levels they do now.
So, the belief that the us is a NG exporter is both semantically and physically false. Selling a tanker load of gas to someone, somewhere does not make the us an ‘exporter’ and it never will.
Nony on Wed, 10th Feb 2016 4:26 pm
We will become a net exporter of NG in 2017. The only reason we are not already, is that NG is so difficult and expensive to transport. Have to have LNG capacity. We are a net importer right now because of Canadian gas which has nowhere to go. However, the CA-USA system as a whole is a net exporter. And once LNG outlets are available the US itself will be a net exporter.
The discussion here shows Zeno Paradox style confusion. Just because we are not a net exporter now, we never can be one. Huh? Ohio was a net importer of NG a few years ago and is now a net exporter. Same with PA. Yes, it IS possible to change from being a net importer to a net exporter.
We will NOT import more LNG to make up for the exported volumes. This is not like the crude swaps. Instead the price will rise and more NG will get produced. We only need another 5% or so to become a net exporter.
bug on Wed, 10th Feb 2016 4:50 pm
Again, the “we” word.
We be doing this
We be doing that.
“We” doing all this importing and exporting are private companies. If you own a share, I guess at a meeting of shareholders or with wife you can say we.
Myself, I cheered for the broncos, and we won, my share is squat.
Apneaman on Wed, 10th Feb 2016 5:04 pm
bug, it’s a common expression among all religious devotees.
dissident on Wed, 10th Feb 2016 5:05 pm
LNG is a racket. There can be a nice markup worked into the shipping and handling aspect. That explains why a net importer will want to export LNG. But only as long as there is enough cheap gas either from domestic or Canadian sources.
BTW, the EU is going to discover the hard way how good it had it with cheap Russian gas. But the EU deserves to eat its hate.
Apneaman on Wed, 10th Feb 2016 5:10 pm
Nony, “Just because we are not a net exporter now, we never can be one.”
Are you willing to apply that logic to all arguments both ways?
Just because oil has gone up in price before does not mean it will again.
Just because there have been economic recoveries before does not mean there will be one again.
History is rife with examples of things that once were then disappeared. Like civilizations and species.
Capitalism is dead retard – deal with it.
bug on Wed, 10th Feb 2016 5:21 pm
I know Apnea, it just drives me nuts.
I own shares in Tidewater, and Transocean, as they have have collapsed in price, I don’t tell co workers and strangers “son of a bitch, we sure lost money with this downturn in the offshore drilling industry.” My loss, not we’s.
Truth Has A Liberal Bias on Wed, 10th Feb 2016 5:46 pm
Capitalism is not dead and peak oil will not likely to cause it to die. Modern industrial finance capitalism will certainly be a goner but not capitalism. After the collapse I will be selling goods and services and buying goods and services, i.e. you give me a blow job and I’ll give you a can of soup, or perhaps I’ll escort you and your family safely across this river in my barge and you give me 2 chickens, for many many years. Anyone who thinks capitalism is dead should explain what they think capitalism is.
Truth Has A Liberal Bias on Wed, 10th Feb 2016 5:47 pm
FYI
https://en.m.wikipedia.org/wiki/Capitalism
Apneaman on Wed, 10th Feb 2016 6:35 pm
Truth, you got a gang or tribe with you? Otherwise you will be dead quick. It ain’t going to be like those apocalyptic lone wolf movies you jerk off to and it will only last a short while once the radiation clouds from the nuclear power plant melt downs come creeping up to your doomstead. Yeah, none of those movies, books, video games or TV shows addresses the power plants do they. Ruins your dystopian doomer fantasy. Maybe you can shoot that ammunition stock at the radiation clouds and see how that works out for you – fucking retard!
Boat on Wed, 10th Feb 2016 6:38 pm
Let’s try this again. Canada had the cheapest nat gas before fracking. Now they don’t. But the infrastructure is in place. Canada now makes much less money than they did. To build infrastructure from the fracked wells to consumers is expensive and takes time.
There is infrastructure in Texas to the gulf. The result is selling nat gas to other countries will make more money than selling in the US. This is why exports happen in a flooded market.
GregT on Wed, 10th Feb 2016 8:33 pm
“Anyone who thinks capitalism is dead should explain what they think capitalism is.”
capitalism:
“an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market”
What capitalism is not:
Shooting you and taking your barge, so that myself, my family, and our two chickens can safely cross the river.
GregT on Wed, 10th Feb 2016 8:39 pm
“The result is selling nat gas to other countries will make more money than selling in the US.’
The US is a net importer of natural gas Boat. Your above statement makes no sense, as usual.
Truth Has A Liberal Bias on Wed, 10th Feb 2016 9:07 pm
Apneaman. Radiation cloud or no radiation cloud, as long as people are alive there will be capitalism. Try stick to to the subject. Capitalism is not dead. As long as two people want to trade goods and services it never will be. You’re kind of an idiot. Did you get your grade 12 yet?