The increase of liquefied natural gas (LNG) trade as a proportion of world natural gas production has reached 9.8% by the end of 2017. Starting in 2016, the volumes of LNG exported from the US have increased from an average of 1.2 billion cubic feet per day (bcfd) (8.9 million tons per annum (mtpa)) to 2.4bcfd (17.9mtpa) by the end of 2017. By 2020, the US have a total of 8.9bcfd (66.7mtpa) of LNG liquefaction capacity from currently planned and sanctioned projects. Presently about 77% of the US volume exported is contracted under a long-term scheme. Through these contracts the US LNG production competes whenever an arbitrage window is created to export cargoes based on shipping costs and natural gas landed prices in the destination markets.
The fully liberalised US natural gas market is conducive to a market competing on price which is in turn a function of supply and demand balances. This sector structure has allowed for LNG plants to operate without needing to integrate the upstream supply in their capital expenditure and will surely continue to be an advantage for future LNG developers in need of a cheap supply of natural gas.
Figure: US and Global LNG Planned Capacity vs LNG Demand
Source: GlobalData Oil and Gas and BP Energy Outlook © GlobalData
Indeed in a scenario where the US will be needing to market approximately 9bcfd (67.5mtpa) by 2020, the sustained LNG demand in Europe, Asia and even South America will be a favourable driver. In the short term other challenges have to be taken into account. For instance China has formally announced a 10% tariff to LNG imports from the US. Also the LNG shipping market is looking tight with rates reaching $100,000 per day for carriers, due in part to higher transport demand which is in part driven by the increased cargoes from the US. Nonetheless the cheap US natural gas prices give enough room to allow increases in shipping cost and volatility in landed prices. During 2018 the US LNG exports have average a $3.7 per MMBtu of netback from its main 13 destinations, still a comfortable cushion to keep several regional arbitrage windows open.
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