The cost of delivering U.S. liquefied natural gas (LNG) to Asia has skyrocketed this year, but with a shortage of natural gas to meet widespread demand around the world, this is likely to have little impact. impact on production which is expected to reach record levels.
Rystad Energy analysis found that the short-term marginal cost (SRMC) of US LNG exports to Asia rose significantly to $ 5.60 / MMBtu this month, up 65% from $ 3.40 over the same period last year and 30% more than in 2020. on average $ 4.30.
SRMCs from liquefaction facilities around the world have jumped across the board due to rising shipping and fuel costs, Rystad said. Charter rates have increased in recent months as tonnage has been strained by unusually high demand in Europe, Asia and South America.
Data from shipping broker Braemar ACM shows that LNG spot charter rates jumped 31% between April and May. They could increase as congestion continues in the Panama Canal, the preferred route for ships from the United States to Asia.
But natural gas prices in Europe and Asia, where first month benchmarks are trading around $ 11, are prompting LNG suppliers to increase production.
“At these price levels, every source of supply should be activated, whether gas or LNG,” said Oleg Vukmanovic, head of business intelligence at Poten & Partners. “The US offer is in the money on a full cost basis. The Egyptian offer, which has more or less a breakeven point of $ 5 / MMBtu, is also expected to be active, but it is experiencing some problems.
Rystad noted that Egyptian LNG has become the marginal LNG supplier to global buyers as it has the highest production costs. Its return to the market follows a price hike after global lows last year amid a supply glut and demand destruction caused by the pandemic.
When natural gas prices in Asia and Europe fell below $ 2 during last year’s crisis, the United States was the most expensive supplier in the world – in part due to the longer distances required to transport super-refrigerated fuel overseas. Rystad estimates that around 12 million tonnes (Mt) of US LNG were shut down in 2020.
“We don’t see any signs of an LNG shutdown in 2021, but we do see a shift in the global LNG SRMC and supply cost curves,” said Sindre Knutsson of Rystad, vice president of gas markets. the society. team. “Instead, US LNG production will reach 72 Mt in 2021, its highest annual level on record, assuming no shutdown.”
US exports fell in June from the previous month due to maintenance at the Cameron, Freeport and Sabine Pass terminals. But they should rebound in July when this work is completed. Gas futures prices that hold up against oil-indexed supplies should also further boost US shipments through the remainder of the year.
A tight winter is also coming, which could push up prices. European storage stocks remain low at 45% of capacity, compared to 78% in the same period last year. Upcoming maintenance on the Nord Stream, Yamal and Turk Stream gas pipeline networks serving the continent is likely to further limit supplies.
Norway recently ended maintenance earlier to get more pipeline imports to Europe, but Russia has limited deliveries to the continent this year as it prepares to roll out the Nord Stream system. 2. It also cut back on supplies through Ukraine as tensions grew between the two countries.
Strong Chinese buying, coupled with efforts to better prepare for winter in Asia after the historic cold and a supply shortage last year, have resulted in strong demand in Asia and created competition with Europe for LNG cargoes. Meanwhile, in South America, winter and drought in the southern hemisphere are driving more LNG purchases.
“At the same time, there are a lot of unplanned shutdowns and maintenance issues affecting LNG production, so not all producers are able to benefit from this rally,” Vukmanovic said in a recent webinar organized by Poten & Partners.
Given the demand, US LNG exports to Asia, Europe and South America have exploded. According to ClipperData, the United States sent 139 shipments to Europe through June 23, up from 122 at the same time last year. U.S. LNG shipments to Asia increased from 102 to 196 during this period, while 58 U.S. cargoes were delivered to South America, up from 21. NGI data shows that the spread of LNG cargoes between Gulf Coast and Asia, after variable costs for these with vessels chartered to cover fuel, evaporation and port costs, is equal to or greater than $ 8 / MMBtu until the end of the ‘year. The spread to Europe is almost $ 7 over the same period.