How U.S. LNG Export Terminals, Projects Are Navigating the Downturn
COVID-19 has wreaked havoc on the global LNG market. Lockdowns and social distancing measures cratered gas demand in what was already an oversupplied market, resulting in high storage inventories and all-time low gas prices in Asia and Europe earlier this year. As international LNG prices collapsed, U.S. LNG operators for the first time have had to contend with a relentless stream of cancelled cargoes and low facility utilization rates. More recently, U.S. cargo cancellations are showing signs of easing as international price spreads are improving for fall and winter on expectations of heating demand picking up in Europe and Asia. But the significant disruptions to U.S. LNG export demand in recent months have demonstrated the U.S.’s role as a swing supplier. Moreover, the lingering effects of the market crash likely will be felt for years to come, given that it already has delayed or sidelined most of the second wave of export projects that were under development but had yet to take a final investment decision.
LNG export demand will be critical for balancing the U.S. gas market in the coming years. Factors affecting utilization at operating terminals, as well as the scope and timing of new projects, will drive that demand. In this Drill Down Report, we examine the impacts of COVID and the subsequent global markets crash on U.S. LNG exports and future capacity additions. Specifically, we delve into the capacity utilization of the existing domestic fleet, and how contract design, cost structures, offtaker types, and other factors have affected offtake patterns. We also provide an update on the status of under-construction and second-wave projects trying to push forward and take FID in challenging market conditions.
Key take-aways from the report include:
- U.S. LNG exports were hit hard this summer by cancellations after COVID-19 and the oil price crash in the first half of 2020 made U.S. cargoes uneconomical to Europe and Asia.
- Global gas markets were already oversupplied before 2020; the demand loss from COVID lockdowns sent global gas prices to record lows. As a result, U.S. LNG exports this summer fell to about 40% of what they were before the crash.
- Cargo cancellations have likely peaked now, with July and August seeing the most cancellations. Cancellations should ease for fall, and U.S. terminals will potentially be back to full utilization by winter.
- The downturn has also severely impacted new project developments. Liquefaction trains and terminals already under construction or commissioning are progressing as planned. But projects still looking to lock in the commercial agreements needed for taking FID have largely stalled.
“Undone” is included in RBN Energy’s 2020 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.