Monday, March 27, 2017

Strong Start to 2017 for U.S. LNG Exports

usa natural gas exports

Figures from the U.S. Department of Energy (DOE) show Cheniere's LNG export facility in Sabine Pass along the Louisiana-Texas border shipped 51.24 billion cubic feet (bcf) of LNG in the month. These volumes were carried on 15 separate vessel transits, some of which carried part-cargoes to multiple destinations.

The January export figure surpassed the 41.8 bcf record set in December 2016, and came in the wake of the 2016 export total of 186.46 bcf compiled after the U.S. mainland's first export cargo sailed from Sabine Pass in February last year.

Thanks to this total, vessel-borne U.S. LNG exports surpassed imports in 2016. Government forecasts call for the nation to become a net exporter of all natural gas by next year.

Sabine Pass LNG export volumes are expected to grow as Cheniere's infrastructure is expanded. Two liquefaction plants, or trains in LNG parlance, are already on stream at the location. Cheniere has plans for six such trains at Sabine Pass, each with a nameplate LNG production capacity of approximately 4.5 million mt per year. Five trains are projected to be in operation by end-2019, according to Cheniere's regulatory filings.

A commissioning cargo has already been produced from the third train, while the company recently filed regulatory paperwork on the fourth train which is expected to start producing in the second half of this year.

Freeport LNG Development's terminal in Texas is expected to start exporting LNG next year. The company website gives its nominal export capacity as 13.9 million mt a year. Cheniere's Corpus Christi LNG export facility, with a nameplate capacity of 22.5 million mt per year, is expected to start in 2019, among at least three other projects scheduled for start-up stateside through 2021.

Cheniere's pioneering year in 2016 has already put the company on a path out of financial wilderness. Three weeks ago, Cheniere announced a landmark fourth-quarter 2016 net profit of $85.35 million compared with the corresponding 2015 final-quarter net loss of $56 million. The bottom line benefited from the debut of the first two trains by September 2016, which saw 24 LNG cargoes head out of Sabine Pass in the fourth quarter.

Cheniere's efforts illustrate the wider turnaround in the U.S. LNG shipping space. Imports were seen as a rising industry in the early 2000s, with the annual figure peaking at 770.81 bcf in 2007. Ship owners invested in tonnage while shoreside locations such as Sabine Pass did so with regasification equipment.

As the shale gas revolution and 2008-2009 economic developments redefined the industry, Cheniere in 2011-2012 took the lead in developing liquefaction facilities adjacent to its regasification complex.
Latest DOE figures show Sabine Pass LNG had been shipped to 19 nations by January. Mexico was the largest single importer with 41.48 bcf on 14 cargoes, including five in January alone. Other notable importers were Chile, Japan, China and India, as well as Jordan in the LNG-rich Middle East.
LNG optimists believe in the future of U.S. exports, given the nation's shale resources and commitment to developing export infrastructure. Development cost overruns in Australia, a leading LNG exporter, and a moratorium in current world leader Qatar could make the U.S. the world's LNG supplier of choice, according to this view.

However, Moody's said in a recent research note that it expects world LNG prices to "remain constrained beyond 2020 as a wave of fresh supply capacity comes online at a time when demand from the world's largest importers is weakening."

Moody's said global LNG supply will swell 44% by 2020 to 455 million mt per annum on new construction projects in Australia, the U.S. and Russia, while the effects of the 2011 Japan tsunami and the subsequent nuclear shutdown will be on the wane.

"Strong LNG demand growth from China, India and new markets will not be enough to absorb the fresh supply capacity coming online, particularly with demand falling in the largest importing countries, Japan and Korea. The market will not rebalance until the early years of the next decade, when global demand and LNG import infrastructure catches up with supply," said Tomas O'Loughlin, Moody's vice president and senior credit officer.

According to Moody's, imports into Japan, which consumes over one-third of global LNG, will fall to 80 million mt per annum by 2020, a 9% reduction from its 2014 record, as nuclear power production slowly restarts. Demand from Korea, the world's second-largest consumer, will also be flat over this period, Moody's noted.

"Until the market rebalances, investment returns for developers of Australian projects will be weak and U.S. LNG offtakers will struggle to recover all of their liquefaction costs," O'Loughlin added.

Cheaper LNG from nearby Australia could make U.S. supplies unfeasible for Japan in this scenario, though the U.S. can still count on Mexico and possibly Europe to receive its exports.

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