trending Market Intelligence /marketintelligence/en/news-insights/trending/-FKCUKq2zE7EtRmWRqYe6Q2 content esgSubNav
In This List

US LNG exports face 'headwinds,' but with an edge

Blog

Insight Weekly: Labor market recovery hurdles; power market integration; nonbank M&A hunt

Blog

ESG & Technology: Impacts and Implications

Blog

Q&A: Q2'21 Power Forecast: Overheated Power Markets are Here – Who Wins, Who Loses, and Why?

Blog

Essential Energy Insights - October 2021


US LNG exports face 'headwinds,' but with an edge

TheU.S. is expected to retain its near-term competitive advantage in LNG exportsdespite remaining vulnerable to the global low commodity price environment.

"LNGproducers with price exposure are likely to continue to face headwinds forprofitability and potentially for the ratings in the coming years,"Standard and Poor's Ratings Services said in an April 12 note. "Nonetheless,depending on the time horizons for companies, banks, and investors, some newprojects, particularly those with tolling arrangements in the U.S., will likelycontinue [to] make it off the drawing board."

SNL Image

TheU.S. will also lead the world as the "predominant source of newliquefaction capacity over the next five years" with 62 million tonnes perannum already under construction, according to the International Gas Union's2016 World LNG Report. Final investment decisions in 2016, however, will be inshort supply.

"Inrecent years, the most attractive supply source has been the United States,owing to the economics of Henry Hub-based pricing," the recently releasedreport said. "[T]his commercial impetus has significantly faded now thatU.S. LNG is not as cheap as most oil-indexed supply. Thus U.S. FIDs areunlikely to occur at the same pace as in 2015."

Indeed,the continuing oil price decline coupled with decreasing demand in theAsia-Pacific led all global LNG price markers to fall to an average $9.77/MMBtuin 2015 from $15.60/MMBtu in 2014, fostering a buyer's market.

"Forcontract negotiations on new or future volumes, the balance has swung back infavor of utilities and off-takers," S&P said. "We see the broaderLNG market … slow to change direction. Given the volume of new supply, mostlycontracted but also uncontracted, it would take a material event to shiftmarket expectations in 2016."

Still,S&P acknowledged it still sees "some parties looking to include aHenry Hub gas spot price component — in spite of the drop in oilprices—especially in the U.S."

Spottrading itself also increased in 2015, reaching 71.9 million tonnes, or 29% oftotal gross global LNG trade, the International Gas Union report said. TotalLNG trade, meanwhile, reached a record 244.8 million tonnes in 2015, and globalliquefaction nameplate capacity reached 301.5 mtpa in 2015. As thesupply-demand imbalance widens, "Europe's role as a key backstop forexcess cargoes in the global LNG market is likely to expand," as cargoesare redirected away from weaker Asian markets.

Standard & Poor's RatingsServices and S&P Global Market Intelligence are offerings of McGraw HillFinancial Inc.