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LNG Flexibility To React To World Demand and Prices
U.S. LNG producers made record profits in 2022 from sales to Europe as over 60% of European Union (EU) LNG imports (up from less than 20% in 2021) were sourced in the U.S. This development is thanks to a failed EU energy policy of: 1) sole reliance on Russia as a natural gas supplier, 2) prematurely closing nuclear and coal plants, and 3) banning fracking that would increase domestic supply. It is also possible due to the shale gas revolution in the U.S. since 2008 which have dramatically and positively impacted world natural gas supply.
U.S. LNG Exports:
Through June of 2022, the U.S exported about 57 billion cubic meters (bcm) of gas as LNG with 39 bcm, or 68% going to Europe.
Graph 1 – Daily LNG Exports From The US By Region In Tons
LNG Shipping Reaction To Market Prices:
The price of U.S. natural gas has increased in 2022 due to worldwide market demand as shown in Graph 2. After climbing to almost $10 in August 2022, Henry Hub natural gas prices settled back to $5.17/million British Thermal Units (MMBTU) in late October 2022. The price of U.S. natural gas has increased due to domestic supply constraints, infrastructure issues and supply shortfall in Europe.
Graph 2 – Five Year U.S. Natural Gas Price History, $/MMBTU
Source: https://www.macrotrends.net/2478/natural-gas-prices-historical-chart
In contrast to the relatively-low U.S. Henry Hub natural gas price shown above, the benchmark EU Dutch TTF natural gas futures prices stood at around $32.90 per MMBTU, as shown by Graph 3, adjusted for the conversion from Euros per MWh. The price is less than a third of the summer peak of $99.36 per MMBTU. This is an approximate 6.36 multiplier from U.S. Henry Hub natural gas prices, and quite the incentive for exports from the U.S. to the EU in 2022.
Graph 3 – One-Year EU/Dutch TTF Natural Gas Price History in Euro/MWh
Source: https://tradingeconomics.com/commodity/eu-natural-gas
The gaping price difference has pushed major companies to ramp up LNG exports from the U.S. to Europe. Just shy of 60% of US liquefied natural gas exports, or 115 kilotons per day, went to Europe in August 2022, up from just 19%, or 35 kilotons a day, in the same month in 2021.
The relatively-low cost of U.S. produced LNG is another driving force for increased LNG exports as shown in Graph 4.
Graph 4 – Price Of US LNG Exports in USD Per Thousand Cubic Feet 1997-2022
(One thousand cubic feet of natural gas equals 1 MMBTU)
Source: https://www.eia.gov/dnav/ng/hist/n9133us3m.htm
Even with the attractiveness of the high EU LNG prices, U.S. LNG has other options as shown by Graph 5 with the Asian LNG price history.
Graph 5 - Asian LNG Price History in USD 1992-2022
Source: https://fred.stlouisfed.org/series/PNGASJPUSDM
Per FT, the global energy crisis continues to deepen as a further surge in natural gas prices in Europe and the U.S threatened to push some of the world’s largest economies into recession. With gas prices up to 10 times their normal level, the possibility of a deep recession has grown, with investors now more downbeat on the German economy than at any time since the Eurozone debt crisis a decade ago.
Gas markets in Europe in 2022 jumped by as much as 10% to as high as €251 a MWh, equivalent in energy terms to more than $400 a barrel of oil in late August 2022. Prices have more than doubled from already extremely elevated levels in June 2022.
U.S. Natural Gas and LNG Exports Increased:
With the high financial incentive to export LNG from the U.S., the volumes in 2022 dramatically increased as shown in Graph 6, both for pipelined natural gas and LNG.
Graph 6 - Volume Of U.S. Natural Gas Exports Via Pipeline vs. LNG
The value of both pipeline natural gas exports and that of LNG is shown in Graph 7.
Graph 7 - Value Of U.S. Natural Gas Pipeline vs. LNG Exports
LNG Export Incentives:
Because of the flexibility of LNG shipment, shipments of 150 million cubic meters per ship with a price of $33 per MMBTU, can bring in $180 million in revenue per voyage, and the price of US LNG exports in $/thousand cubic feet is shown in Graph 8.
Graph 8 - U.S. LNG Exports Vs. Key U.S. & Global Natural Gas & LNG Prices
LNG Export Issues:
Global gas demand is predicted to surge 12.5% between 2022 and 2030, from 4 TCF to 4.5 TCF. The U.S. in 2022 is expected to invest $27 billion on greenfield projects, $32 billion in 2023, and $42 billion in 2024. Despite U.S. investment in natural gas, LNG tanker availability is getting much tighter as $24.1 billion worth of new vessels were ordered in 2022 compared to $15.6 billion in 2021.
Summary:
- U.S. natural gas is produced in a very environmentally-acceptable manner and economically, with increased production, liquefaction, and export facilities to supply the EU.
- Global prices for LNG have exploded in 2022, and with high margins from U.S. facilities, the LNG export business is very attractive economically.
- The LNG market is global with U.S. consumers, the EU, and Asia all competing for American natural gas volumes.
- LNG is a very transportable and flexible alternative to acquire natural gas, albeit with high current prices incenting production, and export to world demand centers.
Copyright © March 2023 Ronald L. Miller All Rights Reserved
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