LNG Exports: Savior of American natural gas producers or just a lot of hype?

American LNG export capacity growing faster than international demand for natural gas

All is not as it would seem in terms of liquefied natural gas (LNG) and its touted role of metaphoric savior of the U.S. gas markets, according to the latest analysis just published by Bentek Energy.

Tanker transporting LNG supplies.

Global gas demand growth has flagged over the last year, rising by no more than 0.7 billion cubic feet per day (Bcf/d), the analysis “LNG Exports: Oasis or Mirage?“ states, while at the same time 2.2 Bcf/d of new export capacity is expected to be added to the market by the end of 2015.

Factors explored in the analysis report include:

• Supply/Demand: Global baseload demand will increase by little more than 3.3 Bcf/d in 2016, according to Eclipse Energy, another of the analytics and forecasting units of Platts, whereas global supply is expected to increase by 4.3 Bcf/d, leaving the global market about 1 Bcf/d longer by yearend.
• New Capacity: Five LNG export terminals are expected to be built in the U.S. over the next five years, with combined liquefaction capacity of 10.16 Bcf/d.
• Price Watch: When global spot prices fall below the marginal cost to deliver a U.S. LNG cargo to market in Asia, Europe, a U.S. capacity holder may forego its option to liquefy, thus coupling the Henry Hub price to global spot indices such as the Platts JKM™ (Japan/Korea Marker) and National Balancing Point (U.K. hub).
• Demand Growth: Japan, South Korea and China are expected to account for 40% of all gas demand growth in 2016 and 60% of aggregate global demand.

“As a result of oversupply of LNG in the global market, U.S. export capacity holders are likely to operate without regard to their sunk cost tolling fees and deliver gas at a cost of feedstock plus transport plus margin,” said Ross Wyeno, senior energy analyst at Bentek Energy, an analytics and forecasting unit of Platts.