Global LNG prices might have peaked, but US exports forecast to remain strong

Global LNG prices might have peaked, but tight gas market dynamics could keep spot prices elevated for 2022 and the coming years, continuing to encourage U.S. LNG exports, analysts said.

Ongoing tensions between Russia and Ukraine have exacerbated an energy crisis in Europe, prompting concern about gas shortages. But prices in the region have slid, with S&P Global Platts assessing the Dutch Title Transfer Facility benchmark, or TTF, March contract at $29.798/MMBtu on Jan. 26, down 36.3 cents/MMBtu on the day. Prices nonetheless remain significantly higher than a year ago.

"The high energy prices seen in recent months are not necessarily a one-off," Goldman Sachs commodity analysts led by Samantha Dart said in a Jan. 23 note to clients.

With the winter heating season's end in sight, the analysts said it may be "tempting" to expect the energy crisis to end too. "We view such a take as premature," they wrote. "This is not only because near-term risks to European gas supplies persist, but also because the uncertainty around European gas supplies extends through the coming summer — and likely through 2025."

The analysts on Jan. 26 flagged the possibility of sanctions on the Nord Stream 2 gas pipeline to Germany if tensions between Russia and Ukraine escalate, potentially curbing the flow of Russian gas to Europe and exacerbating a supply crunch.

Sanford C. Bernstein & Co. analysts see the worst of the winter gas price spike as likely over, although they said markets would likely remain on a "knife edge."

LNG supplies will be critical for balancing the European gas market because of the geopolitical risks to pipeline supply and because storage inventories remain below average, according to the analysts, led by Neil Beveridge. Storage inventories are about 47% full, compared to a 10-year average for January of 66%, the analysts said.

Bernstein analysts expect that beyond 2022, LNG spot prices to trade at a premium to LNG term pricing until 2024 because of limited new LNG supplies set to come online in the coming years. The analysts said their model anticipates spot LNG to trade at $16/MMBtu in 2022 and $12/MMBtu in 2023.

In the U.S., total feedgas deliveries to the country's six major operating LNG export terminals were about 12.8 Bcf/d on Jan. 26, close to record highs seen in recent months, according to S&P Global Market Intelligence pipeline flow data.

The U.S. is forecast to become the biggest exporter of LNG in the world in 2022, with feedgas flows poised to continue rising as new liquefaction units come online. A seventh terminal, Venture Global LNG's Calcasieu Pass LNG terminal, is undergoing commissioning. An eighth export facility under construction, the Golden Pass LNG Terminal in Texas, is scheduled to start up in 2024.

ABout a dozen other U.S. developers also are pursuing new export terminal projects but have yet to announce final investment decisions on the facilities amid long-running struggles to sign sufficient commercial agreements to underpin financing for the multibillion-dollar projects. Market observers are watching to see if the global LNG supply shortage will encourage investments in some of the facilities in 2022, after a flurry of commercial activity.

"The turmoil experienced by European gas markets in 2021 could add a new chapter to the story of U.S. LNG in 2022," RBN Energy analyst Richard Pratt said in a Jan. 26 report. "The market gyrations of the last six to eight months have spurred U.S. LNG project developers to promote their initiatives with renewed vigor. Although 2021 saw several projects decide to fold, market commentators are confident that 2022 will see at least three projects take a final investment decision."

S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.