Crossroads, Encore Edition - Record Global Gas Prices Signal More Room for North American LNG

It has been a chaotic couple of years for North American LNG and the global gas market. In a short time, international gas markets went from oppressively oversupplied balances, high storage inventories, and historically low prices for much of 2020 to reckoning with panic-inducing supply shortages, low inventories, and multi-year or all-time high prices in the biggest LNG-consuming regions. The resulting whiplash has transformed key aspects of the LNG market, making a profound impact on the way existing LNG terminals operate, how projects secure funding and capacity commitments, and what offtakers expect for the next generation of LNG capacity buildout. The tight market appears to have settled the question of whether more export capacity is needed, at least for now, but the market’s sharp U-turn has also put potential offtakers on edge and underscored the need for contractual flexibility. Additionally, pressure to reduce greenhouse gas (GHG) emissions is higher than ever, and LNG offtakers are increasingly demanding greener solutions to address government regulations and public concerns. This convergence of factors has put the LNG market at a crossroads. Taking all of the lessons learned from the last two years and before, the industry must now forge a new path forward. In the encore edition of today’s RBN blog, we discuss highlights from our recent Drill Down report, looking at the major trends that will define the North American LNG market in the coming years.

In observance of today’s holiday, we’ve given our writers a break and are revisiting a recently published blog on our Drill Down Report on North American LNG Markets. If you didn’t read it then, this is your opportunity to see what you missed! Happy Thanksgiving!

The domestic and international LNG markets today are almost unrecognizable from a year ago. At this time last year (yellow-shaded area in Figure 1), U.S. Gulf Coast LNG producers were still emerging from the peak of the cargo cancellations that occurred in the summertime, precipitated by COVID-related shutdowns and demand destruction around the globe. International gas prices had partially recovered from the all-time lows seen over the summer but were still near multi-year lows, while Henry Hub was languishing in the low to mid-$2/MMBtu range. The economics for delivering to Europe and Asia still left U.S. LNG mostly out of the money (see Sultans of Swing for a detailed breakdown of export economics). For example, the Japan-Korea Marker (JKM; gray line on the right axis), the oldest and most liquid LNG price index and a good representation of the global LNG market, fell to historic lows near $2/MMBtu in the spring of 2020 and carried $2 handles through much of that summer. As COVID conditions in Asia began to ease (earlier in Asia than in Europe or the U.S.) last year, JKM prices staged a modest recovery but stayed below $3/MMBtu until the September contract expired in mid-August and prices began climbing from there. This time last year, prices were on the rise, heading for $10/MMBtu.

To access the remainder of Crossroads, Encore Edition - Record Global Gas Prices Signal More Room for North American LNG you must be logged as a RBN Backstage Pass™ subscriber.

Full access to the RBN Energy blog archive which includes any posting more than 5 days old is available only to RBN Backstage Pass™ subscribers. In addition to blog archive access, RBN Backstage Pass™ resources include Drill-Down Reports, Spotlight Reports, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. If you have already purchased a subscription, be sure you are logged in For additional help or information, contact us at info@rbnenergy.com or 888-613-8874.