Gas prices to support high US LNG output through summer – Goldman Sachs

U.S. LNG terminals will likely operate at close to their full capacity throughout 2021, as global natural gas prices continue to support exports of American cargoes while the market rebalances from a surge in winter demand that saw U.S. exports rise to record highs, Goldman Sachs forecast.

"We continue to assume an average 85% utilization rate at U.S. liquefaction facilities during summer to reflect occasional feedgas fluctuations due to maintenance and other transient events," according to Goldman Sachs commodity analysts led by Samantha Dart in a March 5 note to clients.

Goldman Sachs forecast that the benchmark LNG price for North Asia, the S&P Global Platts Japan Korea Marker, will be $7.20/MMBtu this summer. That implies a premium to the Dutch Title Transfer Facility benchmark, or TTF, in Europe, which the analysts predicted will be $6.30/MMBtu over the same period.

Total feedgas deliveries to the six major LNG export terminals that are operational in the U.S. have rebounded sharply from a cold snap in Texas during mid-February that had impacted operations at Gulf Coast liquefaction terminals. Flows to the U.S. export facilities hit a low of about 2.2 Bcf/d on Feb 16 but exceeded 10 Bcf/d by the first week of March, according to pipeline flow data from S&P Global Market Intelligence.

Goldman Sachs said U.S. LNG deliveries for February totaled 96 million tonnes, a record-high, and estimated that output would decline to about 72 Mt in March.

"Our balances suggest global LNG markets remain oversupplied this year, with a relatively high level of residual supply to be delivered in Europe," the Goldman Sachs analysts said. "This is especially the case given the normalization of U.S. LNG exports, which have already fully recovered from freeze-off disruptions in February and remain priced to operate near capacity throughout 2021 and beyond."

U.S. LNG exporters faced a wave of cargo cancellations in 2020 as the coronavirus pandemic exacerbated a global oversupply of gas. Utilization of U.S. LNG terminals in 2020 bottomed at about 20%, but flows to the facilities saw a strong recovery in the final months of the year, encouraged by rising prices with winter seasonal demand increases in Europe and Asia.

It was unclear headed into 2021 what the export dynamics would be after the peak winter heating season. Some market observers cautioned that there could be further cancellations of U.S. cargoes, albeit less severe than in 2020. Then spot prices for LNG in North Asia rallied to record highs in January amid the region's coldest winter in decades, shipping constraints, and supply outages at terminals outside the U.S.

"We expect this oversupply to be significantly smaller year-on-year," the Goldman Sachs analysts said, predicting demand in Asia would be 23 Mt higher this summer, supported by a widespread economic recovery from the coronavirus.

The general consensus among analysts has been that the price swings support a higher level of commercial engagement tied to new projects, as buyers look to secure supplies for the long term in reaction to signs of a tightening global gas market. Relatively little new LNG production capacity is expected to come online across the world in the next few years.

Freeport LNG Development LP CEO Michael Smith supported this notion in March 3 comments at the CERAWeek by IHS Markit energy conference. He said swings in benchmark gas prices over the past year from supply disruptions, the coronavirus pandemic, and strong winter demand demonstrated that the "market is much more balanced than previously thought."

Smith also pointed to renewed interest from buyers in long-term contracts tied to a proposed fourth train at the Freeport LNG terminal south of Houston. "There has been an overreliance on spot cargoes in our industry," he said. "You can't just live on the spot. We're seeing interest again in long-term contracts for train 4 because of it, and I think others will, too."

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

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