The collapse in oil prices and the resulting collapse in the spot prices for liquefied natural gas (LNG) in Asia have caused many to question whether US LNG exports are still viable and whether America’s gas will find a home in Asia. There have even been dire predictions including a report from Moody’s that said it expects most of the 50-plus proposed LNG export terminals in the United States and Canada will be cancelled.
While some projects are no doubt under pricing pressure, the projects with early mover advantage – such as Cheniere’s Sabine Pass LNG and Freeport LNG – are fully contracted to mostly Asian buyers or trading houses. Cheniere’s first four LNG trains (16mpta) are secured by long-term FOB contracts with BG Group, Gas Natural Fenosa, KOGAS and GAIL. Construction on Trains 1&2 began in August 2012 and Train 1 is currently in the commissioning process.
Freeport’s three LNG trains (13.2mtpa) have been contracted under use-or-pay liquefaction tolling agreements (LTAs). Buyers for Train 1 are Osaka Gas and Chubu Electric, the buyer for Train 2 is BP Energy Company, and offtakers for train 3 are Toshiba Corporation and SK E&S. All three trains are under construction and the first two trains are on schedule to commence operations by September 2018 and February 2019, respectively.
These first two US LNG export projects offered something Asia desperately needed at the time - an alternative to high oil linked pricing. Other projects followed suit in terms of contract structure and according to the US Energy Information Administration (US EIA), almost 80% of US LNG export volumes for projects currently under construction have been contracted out on pricing terms linked to Henry Hub or under a hybrid pricing mechanism. Perhaps more significant is the fact that US LNG export contracts provide for destination flexibility, which means US gas can flow anywhere in the world depending on market conditions, subject to any restrictions in the export license.
So, will the first US LNG export cargo go to Asia? Cheniere expects to ship its first cargo at the end of 2015 or early 2016. With the current low spot LNG prices in Asia ($8.0/MMBtu Platt’s Sept. JKM) and given Cheniere’s recent focus on Europe with new deals just signed with Électricité de France (EDF), the very first US cargo might well find a home in Europe. But as US LNG exports ramp up with Cheniere, Freeport and others in the coming years, more cargos will flow to Asia. This is especially likely given the fact that Asian countries such as Japan, China, and Singapore are developing regional trading hubs. As these hubs develop and LNG begins to trade as a true global commodity with American gas providing an arbitrage opportunity for all, US LNG will likely receive a warm welcome in Asia.
Will US LNG find a warm welcome in Asia? Leave your comment below.
More about US LNG:
Thursday 29th October, 11:40am - BG Group, Wood Mackenzie, ENN Group, Delfin LNG, Tokyo Gas, Macquarie Bank will be discussing about "New Wave North American Supply: What Works Best for Asian Buyers" at Gastech Singapore.
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