U.S. LNG exports have climbed from zero to about 6 Bcf/d in less than four years. This year to date alone, three new liquefaction trains have come online at three different terminals with an additional train at Freeport LNG and Elba Liquefaction’s first four mini-trains in the commissioning process. The completion of these and other projects around the globe, particularly in Australia, have led to an oversupplied global market, made worse this year by a mild winter and high natural gas storage levels in Europe, and nuclear restarts and slowing demand growth in Asia. These dynamics sent international prices spiraling downward in recent months. Then, in September, prices briefly spiked up as regulatory news out of Europe suggested higher global gas demand. In the midst of all this market turmoil, U.S. export cargoes have remained unfazed. But the shifting fundamentals have played a role in where U.S. cargoes ultimately end up. Today, we begin a series looking into how liquefaction capacity contracts and international prices affect cargo destinations from U.S. LNG terminals.
To put U.S. LNG exports into perspective, initial cargoes out of the first wave of projects began in early 2016 from Cheniere Energy’s Sabine Pass Liquefaction (SPL) in southwestern Louisiana. Since then, SPL has completed four more trains, and four additional export terminals have come online, including Dominion’s single-train Cove Point facility in Maryland, two trains at Cheniere’s Corpus Christi terminal and the first train at Sempra’s Cameron LNG, also in southeastern Louisiana. Plus, Freeport LNG’s first train is in the commissioning process and began exporting cargoes in early September, and Elba Liquefaction’s first mini-train was approved for full service earlier this week and three more units are in the commissioning process there (though the facility has yet to load its first commissioning cargo). The U.S. now has 6.1 Bcf/d of liquefaction capacity that is already commercialized or in the process of being commissioned. Total U.S. exports over the past month have averaged about 4.9 Bcf/d, as Cove Point is currently offline for maintenance and Sabine Pass Trains 3 and 4 were offline in early September as well. With planned maintenance on existing terminals ending and Freeport and Elba’s commissioning process progressing, exports are expected to reach close to 7 Bcf/d by the end of this year. With these projects coming online, the U.S. has been among the fastest-growing exporters, second only to Australia. In 2018, the U.S. accounted for nearly 7% of global LNG demand, and with the recent and upcoming capacity additions, U.S. market share is well on its way to exceeding 10%.
The U.S.’s initial export projects — many of them sited at brownfield LNG import terminals — have thus far enjoyed the first-mover advantages that you’d expect. Their collective liquefaction capacity is 93% contracted (we’ll get into the specifics of those contracts in Part 2). And these new entrants came online at a time when Asian demand was growing rapidly, led by China. But prospects for global market growth have been tamped down somewhat in 2019. As we noted above, a global supply glut has ballooned in recent months, in large part because of the liquefaction and export capacity additions in Australia and the U.S. and, more recently, by bearish near-term fundamentals in the Asia-Pacific (APAC) region and Europe, the two biggest LNG importers. (Japan, China and South Korea lead demand among the APAC countries, while Germany and the UK are the largest gas consumers in Europe.) Gas demand growth among APAC countries has been robust, led by China and other emerging markets. But the pace of growth in China has slowed, and nuclear reactor restarts in Japan have shaved some demand there this year. As for Europe, despite stagnating gas demand there, gas imports — both from LNG and by pipeline — generally have been on the rise, as native European production has been declining for nearly two decades. However, a mild winter left the region with storage levels well above the 5-year average — some storage facilities are reporting that they are full.