Crossroads – The Way Forward for North American LNG Exports

How North American LNG is Forging a New Path Amid Global Market Volatility

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It has been an incredibly tumultuous 18 months for North American LNG and the global gas market. International gas prices have seen both historic lows and highs as markets swung from precipitous demand destruction due to COVID-19 for much of 2020 to acute supply shortage in 2021. For LNG buyers and offtakers, the sharp reversal from one extreme to the other in a relatively short period of time has underscored the risks of long-term commitments in a rapidly changing environment. At the same time, the supply shortage is signaling the need for more liquefaction capacity and LNG supply — in stark contrast to the conventional wisdom in pre-COVID times that the market was entering an overbuilt, oversupplied cycle. The long-term uncertainty coupled with near-term supply fears has had a profound impact on the way the existing fleet of LNG terminals operates and what offtakers expect for the next generation of LNG buildout, from contractual flexibility to price diversification. Complicating matters is that pressure to reduce greenhouse gas (GHG) emissions has reached fever pitch, and LNG offtakers are increasingly demanding greener solutions, both to comply with government regulations and to appease public concerns. The convergence of these events has brought LNG producers and developers to a crossroads, requiring them to take all of the lessons learned from the past 18 months and before, to forge a new path forward for the future of North American LNG.

In this Drill Down Report, we take a look at the latest trends affecting North American LNG development and its role in the global gas market as current supply shortages intersect with long-term demand uncertainty. We examine how we got here, what it means for LNG now and most importantly, what the future of North American LNG looks like.

Key takeaways from the report include:

  • U.S. LNG exports have more than rebounded from the COVID-induced global price crash and cargo cancellations of last summer. Feedgas demand is currently above 10 Bcf/d and poised to head higher later this year as new liquefaction capacity is being commissioned and expected to enter full service in early 2022.
  • Global gas and LNG prices are at record highs, as robust gas demand around the world and low European storage inventories have led to fierce competition for a limited supply of LNG cargoes. Prices are expected to remain strong through this winter given the low European storage inventories and overall tight balances across the major consuming regions.
  • Prolonged high global gas prices have revitalized interest in offtake capacity from new LNG buildout. But the development and funding of the second wave of North American export projects will look much different than the first wave.
  • Offtakers are looking for more diverse pricing structures, shorter-term contracts, and green LNG to meet growing demand while also addressing environmental regulation and navigating long-term uncertainty.

"Crossroads" is included in RBN Energy’s 2021 Drill Down report series, a suite of reports covering many of the key issues expected to impact the markets for crude oil, natural gas and natural gas liquids. Drill Down reports are part of RBN Backstage Pass™ premium resources that also include Blog Archive Access, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. By subscribing to RBN’s Backstage Pass™ Premium Services, you plug into our network and get direct access to our premium resources.

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