In less than a week, the United States will be able to send liquefied natural gas (LNG) from its shale reserves to any port around the world. The first U.S. LNG shipments could go anywhere from Chile’s Quintero to Guangzhou in Guangdong, China—or both. After all, the United States has the supplies to become the world’s third-largest LNG exporter after Australia and Qatar. That is, of course, if the U.S. LNG sector can find a way to sell its product.
U.S. companies have sold roughly 58 million tons of LNG under long-term contracts out of five facilities currently under construction in Louisiana, Maryland, and Texas. These facilities, experts suggest, will be able to sufficiently supply the combined LNG markets of Europe and South America. But flexible purchasing agreements, eroding prices, and weakened demand for LNG could make the United States shale market less attractive than it was mere months ago.
In other words, the United States is about to burst into a glutted market, defined by growing competition between exporters. At the same time, Asian demand is weak and European demand has not recovered from its pre-recession levels. Furthermore, in many countries, particularly in Europe, natural gas still competes for market share with cheaper coal and zero-emission renewables, which make future LNG demand—as well as future markets—uncertain.
A MAJOR MARKET, AT A COST
As the United States started considering selling LNG abroad, Asia was considered the primary target market due to its premium prices and fast-growing demand. The idea was that the pricing differential between U.S. and Asian gas prices was big enough to cover the cost of buying the gas, transforming it to its liquid form, shipping it, regasifying it, and still leaving enough money in hand to turn a profit. But the economics of North American LNG exports have become less attractive as North Asian spot gas prices have hovered at $7.2 per million British Thermal Units (MMBTU) at the end of 2015, spot price spread between the United States and Asia has created economic uncertainties for U.S. gas exporters, as their erstwhile market now looks domestically for cheaper product.
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