SPAs

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.