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US LNG exports to Latin America slow as more shipments head to Asia, Europe

U.S. exports of liquefied natural gas to Latin America dropped off in recent months as shipments to countries in Asia and Europe mounted in response to growing demand.

Looking ahead, international energy experts expect Latin America to continue to consume U.S. gas when cargoes are cheap enough while Asian imports anchor American LNG shipments.

Of the roughly 45 Bcf of LNG exported from Cheniere Energy Inc.'s Sabine Pass terminal in Louisiana in August, three cargoes carrying more than 10 Bcf of LNG from Sabine Pass headed to South Korea, the latest data shows. Jordan followed, taking 7.4 Bcf of LNG, with Mexico coming in third at 6.9 Bcf. Lithuania, Spain, Portugal and Italy also received cargoes.

Despite not having any long-term contracts for U.S. LNG, Latin America has emerged as one of the top homes for shipments from Sabine Pass, the only active LNG export terminal in the Lower 48. Mexico imported more than twice as much LNG as any other country since February 2016, while Argentina and Chile are in the mix of other top destinations for spot cargoes. Argentina used the gas supply to balance shortages, while Chile has been ramping up its natural gas-fired power generation.

"It's the perfect market to soak up excess cargoes," David Goldwyn, a former U.S. Department of State special envoy and president of the energy consulting company Goldwyn Global Strategies, said in early October on the sidelines of an event at the Atlantic Council in Washington, D.C. "It's not huge, but it's really important."

Latin American demand surprised industry observers and other analysts who expected the bulk of U.S. LNG exports to find a home in Japan and China. Although Japan is one of the top importers of LNG globally, the country ranks fourth in importing volumes exported from Sabine Pass, according to data through August. China, which has ramped up its imports of LNG, lagged bullish demand forecasts in the first year of exports from Sabine Pass.

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Although the region has become a player in U.S. LNG trade, developers are unlikely to see any long-term contracts coming out of Latin America soon. "When prices are below $9, they'll take their chances," Goldwyn said.

Variable demand from markets in Latin America, Europe and the Middle East will continue to play a vital role for LNG exports, said Tim Boersma, senior research scholar at Columbia University's Center on Global Energy Policy. "Their influence as far as incremental demand has been fairly substantial," he said. "The glut that people have been talking about for two years arguably hasn't emerged yet."

The advancement of floating storage and regasification units has allowed smaller countries and companies with less access to credit dip into the market, and together, those emerging importers have helped absorb a wave of new capacity from the U.S. and Australia, Boersma said.

Bullish signals from Asia

Bigger gas markets with creditworthy companies willing to sign 20-year contracts will play a vital role in deciding which export projects get built. Long-term deals have dropped off over the last couple of years, but U.S. developers are excited about recent bullish signs from Asia, including Beijing's push to lessen China's reliance on coal and nuclear-generated power.

Japanese trade minister Hiroshige Seko told a conference in Tokyo that the government was prepared to offer $10 billion to support joint private enterprise and government projects to supply LNG or build LNG infrastructure in Asia, Reuters reported Oct. 17.

In South Korea, whose Korea Gas Corp. already has a 20-year contract for LNG from Sabine Pass, the new government has pledged to focus more on natural gas imports in its effort to wean its reliance on coal. South Korea's trade minister reportedly told the country's parliament that the U.S. was seeking to include LNG exports as a demand in upcoming talks to renegotiate the free trade agreement between the countries.

GAIL (India) Ltd. is looking to use U.S. LNG to restart three idled fertilizer plants, Bloomberg reported, citing people familiar with the matter. Each of the plants would require 2.5 million cubic meters of LNG per day, according to the report. The state-run Indian company has contracts with Sabine Pass and Dominion Energy Inc.'s Cove Point LNG export terminal set to come online by the end of 2017.

European countries get their 1st cargoes

Although U.S. LNG exports to Europe receive a lot of attention in Washington D.C., the region accounted for a small portion of overall volumes from Sabine Pass in its first year. But shipments to Europe increased recently, with Poland, Lithuania, the United Kingdom and the Netherlands all receiving their first cargoes over the summer.

Europe now accounts for 13.6% of exports from Sabine Pass from February 2016 through August, according to the U.S. Department of Energy.

Whether countries such as Lithuania keep importing U.S. LNG after successfully renegotiating contracts with Russia's Gazprom has yet to be determined, Boersma said. "When Lithuania's current contract for its floating regasification terminal expires ... the logical question is: are they going to extend that or will they let it go?"