U.S. LNG export terminals are running at their operationally available and contracted levels and will continue to do so, with no economically driven cargo cancellations anywhere on the horizon. Global gas prices are well supported by low storage levels in Europe, and it will take time to refill inventories, which means these high prices are not going away anytime soon. The upshot: U.S. LNG will have a very different kind of summer than it did last year, when global prices were at historic lows and many U.S. terminals saw more cargo cancellations than exports. Feedgas in April this year averaged 10.77 Bcf/d, nearly 3 Bcf/d higher than last year, and as we progress into summer, the year-on-year delta will become even more pronounced. Barring any major operational issues, feedgas demand will stay around 11 Bcf/d, which is the level needed for the terminals to produce at full capacity. That’s in stark contrast to last summer, when feedgas demand cratered and averaged as low as 3.34 Bcf/d in July as cargo cancellations peaked. Today, we look at what’s supporting global gas prices, how that impacts export economics for U.S. LNG, and what that means for feedgas demand in the months ahead.
At this time last year, the U.S. LNG export market was on the cusp of virtually grinding to a halt as the pandemic triggered nationwide lockdowns around the world, closing ports, and crushing energy consumption. The resulting demand destruction and severe supply imbalance sent natural gas and LNG prices in Europe and Asia to record lows. International price spreads for LNG collapsed to well below the marginal cost of U.S. exports for the entire summer. The upside-down economics led to mass cargo cancellations, solidifying the U.S.’s role as a marginal LNG supplier in the global market. Further, all this was happening through much of the natural gas injection season (April through October), compounding the supply glut in the U.S. and amplifying the domestic market’s seasonality (see An LNG Market for All Seasons). It didn’t take long for the LNG market to flip again, however, once the lockdowns eased and demand began to recover. The global balance swung from oversupplied to undersupplied as cargo cancellations subsided last fall, and a tighter balance has persisted since then.
Visualize the infrastructure behind U.S. NGL movement.
The U.S. NGLs Map provides a comprehensive view of the transport, processing, and export networks moving NGLs across the U.S.
A look at global prices illustrates just how much the market changed in a relatively short time. Figure 1 plots historical CME/NYMEX futures prices for Asia’s LNG benchmark Japan-Korea Marker (JKM; orange line), Europe’s Dutch Title Transfer Facility (TTF; yellow line), and UK National Balancing Point (NBP; gray line) gas indices, and the U.S. benchmark Henry Hub (blue line). The takeaway is that international prices went from a lofty $8-$12/MMBtu in 2018 — $6-$10/MMBtu above Henry Hub — to converging across the board with Henry Hub near $2/MMBtu in 2020 and then, within a matter of months, not only staging a full recovery to pre-pandemic levels but also surpassed them. The July 2020 JKM contract expired barely above $2/MMBtu. Contrast that with the February 2021 prompt contract, which had a single-day close as high as $19.70/MMBtu and expired above $18/MMBtu. The prompt TTF contract also rallied beyond its 2018 high to above $10/MMBtu by January 2021, and NBP wasn’t too far behind.
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About the song
"Summertime" was written by Robert Bell, Ronald Bell, George Brown, Robert Mickens, Hula Mahone, Craig Simpkins, Jeff Townes, Will Smith, Charles Smith, Alton Taylor, D.T. Thomas, and Richard Westfield. It appears as the second song on DJ Jazzy Jeff and The Fresh Prince's fourth studio album, Homebase. Released in May 1991, the single went to #1 on the Billboard Hot R&B/Hip-Hop Songs chart, and #4 on the Billboard Hot 100 Singles chart. The instrumentation in “Summertime” samples Kool & The Gang's song, "Summer Madness." The song won a Grammy Award for Best Rap Performance by a Duo or Group at the 1992 Grammy Awards. It has been certified Platinum by the Recording Industry Association of America (RIAA). Personnel on the record were: DJ Jazzy Jeff (Jeff Townes) and The Fresh Prince (Will Smith).
Homebase was recorded between May 1990 and April 1991 at Battery Studio Sound and Soundtrack Studios in New York City, and Warehouse/J.E.M. Recording Studios in Philadelphia. Produced by Hula & K. Fingers, Will Smith, and Jeff Townes, the album was released in July 1991. It went to #5 on the Billboard Top R&B/Hip-Hop Albums chart, and #12 on the Billboard Top 200 Albums chart. It has been certified Platinum by the RIAA. Four singles were released from the album.
DJ Jazzy Jeff and The Fresh Prince was an American hip hop duo from West Philadelphia. They were active from 1986 to 1994, and are known for their lighthearted, upbeat hip hop singles. Will Smith and Jeff Townes claim that they have never officially split up and remain close friends to this day. They last performed together in September 2019. Will Smith starred in a spin-off television series that ran from 1990 to 1996 called The Fresh Prince of Bel-Air that launched his television and movie career. DJ Jazzy Jeff and The Fresh Prince have released five studio albums, four compilation albums, and 14 singles. They have won three American Music Awards, two Grammy Awards, and one MTV Video Music Award. They have sold over 5.5 million records in the U.S. Will Smith is a top-draw actor and movie producer, with 35 movies that he has starred in, and 19 that he produced to his credit. He has also been featured in several television shows. Jeff Townes still works under the name DJ Jazzy Jeff, and works as a DJ, record producer, songwriter, and performer. He has released 16 studio albums and worked with several top hip hop artists since the heyday of DJ Jazzy Jeff and The Fresh Prince. He has also appeared as an actor in a few television shows.
