Gas exports plummet at US ports

The coronavirus has crushed exports of liquefied natural gas from US shores, curtailing an important sales outlet for the world’s largest gas producer. 

Shipments will have dropped by 60 per cent in July from their peak in January, the Energy Information Administration forecast last week, with the US sending out the least liquid gas since before a string of new processing units opened between Texas and Georgia.

Trade in LNG has tied together gas markets once segmented by continents, as gas is chilled and condensed for transport on ships. The US contributed more than half the liquefaction capacity added in the world last year, according to the International Gas Union. When Sempra Energy’s Cameron LNG produced its first volumes in May last year, President Donald Trump visited the plant to cheer on the US as “the energy superpower of the world”. 

Some European countries have hoped these rising supplies would help break their dependence on Russian natural gas imports. Poland recently decided it would not renew a long-term supply deal with Russia’s Gazprom that expires in 2022, favouring imports of Norwegian and American gas instead. 

Line chart of Billion cubic feet per day showing Exports of US gas from LNG plants are set to fall 60 per cent

The US state department last year hailed the country’s new LNG capacity as allowing “molecules of freedom to be exported to the world”. 

For now, though, natural gas prices on the Gulf of Mexico coast are above those in east Asia and Europe, putting US LNG out of the market, according to brokers, especially once shipping costs are factored in. The pandemic has caused the biggest fall on record in world gas demand, giving buyers the upper hand.

Natural gas prices are so cheap in Europe that an LNG cargo from France is scheduled to arrive in Mexico this month, undercutting exports of US gas delivered by pipeline, said Tudor, Pickering, Holt, an investment bank.

“Essentially, the world doesn’t need more LNG from the US at this moment,” said Dumitru Dediu, a partner at McKinsey who consults for the energy industry. 

Line chart of $ per million British thermal units showing US natural gas is losing its cost advantage

Just over 750,000 tonnes of LNG had left US ports on 11 tankers from June 1 to late last week, according to ClipperData, a vessel-tracking service. In May, 3.6m tonnes of LNG had been shipped on 53 vessels. 

Volumes of pipeline gas fed to the six LNG terminals in the mainland US have dropped below 4bn cubic feet per day, down from more than 9bn cu ft/d in January, IHS Markit PointLogic data showed. US oil and gas fields will produce about 90bn cu ft/d of gas this year, the EIA estimates. 

Line chart of Billion cubic feet per day showing American LNG plants are taking in less 'feed gas'

About 45 shipments planned in July, or more than 60 per cent of the total, have now been cancelled, said brokers and analysts. But about half of the US’s exports are underpinned by long-term contracts that require buyers to pay even for cargoes they cancel, insulating the revenues of plant operators such as Cheniere Energy, which owns liquefaction units at Sabine Pass, Louisiana and Corpus Christi, Texas.

Buyers’ appetite for US gas will eventually perk up again, say analysts, not least for strategic reasons.

“How much Qatari exposure do you really want? How much exposure to Russia do you want?” asked Frank Harris, head of global LNG at Wood Mackenzie, a consultancy. “So there will be a need for more US LNG.”