NBP

In the past few years, the Netherland’s Title Transfer Facility (TTF) overtook the UK’s National Balancing Point (NBP) to become the premier gas trading hub in Europe. TTF has gained favor over NBP largely due to its location closer to more markets, supply pipelines, plentiful storage, and also the Netherlands’ Gate LNG import terminal, which has become paramount given Europe’s growing need for imported gas. As imports have grown, so has TTF in terms of its volume and its liquidity — a trend that is expected to continue as the European gas market evolves. TTF now shares the stage with Henry Hub and the Japan Korea Marker (JKM) as one of the key global benchmarks for LNG and natural gas. Though traders use TTF as a price index for LNG, much like its cross-Atlantic peer, Henry Hub, TTF is also heavily influenced by regional pipeline gas and storage levels. Today, we’ll look at the history of Europe’s premier natural gas index and the fundamentals affecting it. 

Not long ago, the economics for U.S. LNG exports were practically a no-brainer. Despite the longer voyage times and the resulting higher shipping costs from Gulf Coast and East Coast ports to Europe and Asia — by far the biggest LNG consuming regions — LNG priced at the U.S.’s Henry Hub gas benchmark presented a competitive alternative to other global LNG supply, much of which is indexed to oil prices, which were higher then. But earlier this year, as oil prices collapsed, COVID-19 lockdowns decimated worldwide gas demand, and international gas prices plummeted, the decision to lift U.S. cargoes has become much more nuanced, and the commercial agreements to support the development of new liquefaction capacity are much harder — if not impossible — to come by. Today, we discuss highlights from RBN’s latest Drill Down Report on the impact of recent market events on U.S. export demand, capacity utilization, and new project development.

In observance of today’s holiday, we’ve given our writers a break and are revisiting a recently published blog on the U.S.’s shifting role in the global LNG market. If you didn’t read it then, this is your opportunity to see what you missed! Happy Labor Day!

Not long ago, the economics for U.S. LNG exports were practically a no-brainer. Despite the longer voyage times and the resulting higher shipping costs from Gulf Coast and East Coast ports to Europe and Asia — by far the biggest LNG consuming regions — LNG priced at the U.S.’s Henry Hub gas benchmark presented a competitive alternative to other global LNG supply, much of which is indexed to oil prices, which were higher then. But earlier this year, as oil prices collapsed, COVID-19 lockdowns decimated worldwide gas demand, and international gas prices plummeted, the decision to lift U.S. cargoes has become much more nuanced, and the commercial agreements to support the development of new liquefaction capacity are much harder — if not impossible — to come by. Today, we discuss highlights from RBN’s latest Drill Down Report on the impact of recent market events on U.S. export demand, capacity utilization, and new project development.

Global natural gas demand disruptions and high storage levels resulting from the COVID crisis have turned international LNG markets upside down. Price spreads for U.S. LNG exports, which were well above $1/MMBtu two months ago, have disappeared and even flipped to negative, with the UK NBP and Dutch TTF price benchmarks — and briefly also Asia’s JKM index — trading below the U.S. benchmark Henry Hub for the first time since the U.S. began exporting LNG in early 2016. Despite the uneconomic price spreads, U.S. cargo liftings have slowed only modestly so far. That’s likely to change in the coming months as both Cheniere Energy and Sempra have confirmed cancellations or modifications to lifting schedules by some offtakers, and other terminal operators are likely facing the same pressure. However, many U.S. cargoes will still move, regardless of prices. What are the economics of cancelling versus lifting a seemingly out-of-the-money cargo? Today, we begin a short series examining the factors affecting U.S. LNG cargo liftings.

New U.S. liquefaction trains and export terminals have added LNG to an oversupplied global market. International gas prices are at their lowest levels in several years, price spreads between the U.S. and destination markets have collapsed and — to make matters even worse — a coronavirus pandemic threatens to undermine LNG demand growth. U.S. LNG exports nevertheless have been increasing with each new liquefaction train that comes onstream, though, mostly because their long-term offtake contracts make cargo liftings relatively insensitive to global prices. The question is, will dire global market conditions somehow undo U.S. LNG production growth? Today, we discuss highlights from our new Drill Down Report on the future of U.S. LNG exports.

After showing relative strength through most of the fall, prices at the UK’s National Balancing Point (NBP) natural gas benchmark collapsed by more than $1/MMBtu in December and have kept falling, and Asia’s Japan-Korea Marker (JKM) index followed suit to some degree. Nevertheless, U.S. LNG export cargoes were at record highs in December as additional liquefaction and export capacity came online last month, including the first LNG export cargoes from the Elba Liquefaction project as well as Freeport LNG’s Train 2. Moreover, U.S. shipments are expected to climb further in the New Year as still more liquefaction trains are completed. While the global price spreads haven’t deterred U.S. exports, they, along with shipping costs, do influence export economics and cargo destinations. Today, we wrap up this series with a look at how LNG export costs interact with global price spreads and impact cargo destinations.

U.S. LNG cargoes’ ability to reach different destinations has become increasingly important for the global market as more liquefaction trains continue to come online, oversupply conditions worsen, and international price spreads have shrunk. Earlier this week, Freeport LNG’s first train began commercial service, marking the sixth U.S. liquefaction and export facility to start commercial operations. About 30% of U.S. long-term contracts for currently operating or commissioning liquefaction trains are held by global portfolio players — i.e., offtakers with large international portfolios and the ability to shift cargoes around the world as prices move. And destination flexibility doesn’t end there, as the other types of offtakers also have shown an increased willingness to divert or even re-sell cargoes in the spot market to better take advantage of shifting price spreads. Today, we continue a series on U.S. LNG export trends, this time focusing on how global prices impact cargo destinations.

New U.S. liquefaction trains and LNG export terminals are entering an increasingly oversupplied global market in which international LNG prices are well below where they stood a year and a half ago and price spreads from the U.S. have collapsed. That hasn’t deterred U.S. LNG exports from increasing with each new liquefaction train and capacity contract that goes into effect, as long-term offtake contracts, which anchor more than 90% of the U.S. liquefaction capacity, have made cargo liftings relatively insensitive to global prices. However, the destinations for U.S.-sourced LNG have been in flux based on the types of offtakers holding capacity on newly commercialized trains as well as shifting global prices. Today, we continue a series on cargoes and destinations, this time focusing on how contracts impact cargo destinations.

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.

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.