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Steady as She Goes, Part 2 - SPAs Keep U.S. LNG Exports Flowing Amid Global Price Volatility

New U.S. liquefaction trains and export terminals coming online are entering an increasingly oversupplied, lower-priced global market. Even so, domestic LNG exports have continued to climb with each new train that is commissioned and commercialized. Feedgas deliveries to the terminals hit an all-time high well above 7 Bcf/d this past week and have stayed up there the past several days. That’s because more than 90% of the operating or commissioning liquefaction capacity is underpinned by long-term Sales and Purchase Agreements (SPAs) that keep cargoes flowing. Planned facilities still under construction are contracted at a similar level, and we expect that to keep U.S. LNG exports on a growth trajectory that’s in line with the commissioning and construction schedules of new plants, to a large extent regardless of international price trends. Today, we continue a series on U.S. LNG export cargoes and destinations, this time with a focus on the existing capacity contracts for operational and commissioning terminals.

In Part 1, we discussed the status and size of the U.S. LNG export terminals that are already online or in the commissioning phase, as well as how the U.S. fits into the larger global market. The U.S. is the second-fastest growing LNG exporter globally, and accounted for about 7% of all LNG exports last year. We also considered market factors in Asia and Europe, the two largest consumers of LNG, and how slowing global demand growth and rising supplies have led to a global oversupply and driven international gas prices to the lowest level they’ve been since the U.S. started exporting LNG in 2016. The low-price environment and bearish market conditions have challenged future U.S. export projects still in the development and financing phase, in turn delaying final investment decisions (FIDs). Near-term, this also has raised questions about potential disruptions to U.S. cargoes from already-operating terminals.

But, as we showed in Part 1, U.S. exports have not only been undeterred, but have continued to rise as new liquefaction trains are completed. In fact, evidence points to the pace of exports being driven more by terminal construction and commissioning schedules, as well as maintenance events, than by the global market. In July of this year, for instance, U.S. exports hit an all-time high of 45 cargoes exported, even as prices at European benchmark hub National Balancing Point (NBP) and Asian benchmark Japan-Korea Marker (JKM) fell to multi-year lows. That export record was matched in September, and further, we are likely to break that record before the end of the year, regardless of the changing price spreads to international destinations.

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