Global gas prices have had a record-breaking year so far, with JKM in Asia hitting all-time seasonal highs in spring, and TTF in Europe last week reaching the highest level since 2008. Prices have been spurred on by a global LNG market that is undersupplied and hunting for additional cargoes. If you were just looking at U.S. feedgas levels over the past several weeks, though, you would never know that we are in the middle of an incredible bull run. U.S. LNG feedgas deliveries have trailed below full-utilization levels for more than a month due to a combination of spring pipeline maintenance, LNG terminal maintenance, and operational issues. The reduced availability of pipeline and liquefaction capacity led feedgas deliveries in June to average 9.35 Bcf/d, or about 85% of full capacity. However, this was just a small and short-lived setback before what is likely to be a breakthrough summer for U.S. LNG. Feedgas demand is already back above 95% utilization and is poised to head even higher over the next few months both from new liquefaction capacity coming online and potentially from spot market cargo production. In today’s blog, we take a look at the impact of spring maintenance on U.S. LNG production and potential feedgas demand growth in the months ahead.
Prior to the COVID-19 pandemic and the subsequent global market crash, U.S. LNG facilities operated mostly at their contracted capacity. Feedgas for LNG exports steadily ramped up from zero in early 2016 to just above 9 Bcf/d in early 2020, with feedgas demand increasing with each new liquefaction train that came online and only deviating to the downside when operational issues or maintenance reduced capacity or to the upside in order to produce the occasional spot market cargo. In April 2020, however, with winter demand subsiding, COVID lockdowns spreading worldwide with no end in sight, and global gas prices nearing rock bottom, offtakers began canceling cargoes from U.S. LNG plants. Just about every Gulf Coast LNG terminal had to pare back operations and partially shut-in production, which sent feedgas plummeting even as new capacity came online (See LNG Interruption and Sultans of Swing for more). Figure 1 below shows the growth in daily feedgas volume (orange line) compared with the estimated feedgas requirement at full-contracted capacity at all the operating Lower-48 terminals combined (black line). As you can see below, prior to the pandemic, feedgas tracked the capacity line closely. However, cargo cancellations curtailed feedgas demand from April to October last year (dashed blue oval), peaking in July and August. At the same time, more than 10 MMtpa or nearly 1.4 Bcf/d of new LNG capacity ramped up as Freeport, Cameron and Elba all brought new trains online during the six-month period that saw the cargo cancellations.
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