US LNG exports will see difficult price environment

Subject

Liquified natural gas in a low oil price environment.

Significance

Long-term sales agreements already struck mean that US entry into the global liquefied natural gas (LNG) market is a certainty. However, the unique arrangements of US LNG projects suggest they will to some extent play the role of marginal producer. Despite remaining an attractive proposition in Europe and Asia for political and risk-mitigation reasons, when prices are low, so too will be US LNG utilisation rates, unlike in stickier production regions.

Impacts

• Spot LNG prices have fallen because of additional LNG capacity and mild winters leaving stock levels high in northern Asia.
• Japan's nuclear reactors represents a downside risk factor for LNG demand as they come back on line.
• The 68 bcm in annual Russian imports by 2020 and growth in domestic production leave forecasts for Chinese LNG demand highly uncertain.
• In Europe, LNG will compete with limited demand in the short term and long-term pipeline contracts for market share.