Hear My Train A Comin', Part 2 - Rising LNG Exports Hitch U.S. Gas to Soaring TTF, JKM Prices

The U.S. natural gas market’s exposure to global gas and LNG markets has come into sharp focus in recent days. A gas supply crunch in Europe and scant LNG cargoes have roiled the international markets and kicked competition into overdrive. European natural gas and Asian LNG prices are at record highs and locked in a race to the top. The U.S. gas market has been relatively buffered from the full extent of the panic-driven premiums enveloping European and Asian markets, constrained primarily by its limited ability to help meet international demand. In other words, the U.S.’s LNG export capacity ceiling is likely the only thing reining in Henry Hub prices from following European and Asian gas/LNG prices to the moon. As explosive as Henry Hub futures are these days, if not for the capacity constraint, they would be much higher. That ceiling is about to get a little higher, however, as two liquefaction projects — Cheniere Energy’s Sabine Pass Train 6 and Venture Global’s Calcasieu Pass — get ready to export LNG from U.S. shores this winter, amid what’s already the most bullish Lower 48 gas market in years. In today’s RBN blog, we detail the timing and demand implications of these two projects.

Last week, the Federal Energy Regulatory Commission (FERC) approved Cheniere Energy’s Sabine Pass to introduce feedgas to the commissioning Train 6 liquefaction unit. Venture Global’s greenfield Calcasieu Pass LNG terminal, which has also started commissioning, is likely not far behind. This step of the projects’ start-up process marks the beginning of a level-shift up in baseline demand for feedgas. There is currently about 75 MMtpa (~9.9 Bcf/d) of LNG export capacity operating in the U.S., 67.3 MMtpa (8.9 Bcf/d) of that on the Gulf Coast. At full utilization, that amounts to about 11 Bcf/d of feedgas demand. The completion of Train 6 and the entirety of the Calcasieu Pass project will increase total liquefaction capacity to 89.65 MMtpa (nearly 12 Bcf/d) and bring total feedgas deliveries up by about 2.25 Bcf/d to more than 13 Bcf/d by the end of 2022. And a chunk of that will be in final commissioning stages and possibly start service during the coming winter.

For U.S. LNG producers and offtakers, the incremental liquefaction capacity couldn’t come at a better time. Global gas/LNG demand is elevated, and prices are at record highs, with European and Asian benchmark indices all trading well above $20/MMBtu, up more than 150% from where they were in April. With U.S. benchmark Henry Hub trading mostly in the $4.50-5.50/MMBtu range, price spreads to European and Asian destination markets have blown out, a clear distress signal for more LNG cargoes in the market. The resulting economics for U.S. LNG producers and offtakers are some of the most attractive we’ve seen since the U.S. began exporting in earnest back in 2016.

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