U.S. LNG exporters seeing strong demand recovery and record volume

U.S. Liquefied Natural Gas (LNG) exporters, which started shipments five years ago and this year are set to for the first time export more natural gas than what is shipped abroad through pipelines, are seeing strong demand this year from Asia, Europe and Brazil.

Cameron LNG liquefaction facility in Hackberry, Louisiana. Image courtesy of Cameron LNG

Cheniere Energy, biggest LNG exporter in the U.S., broke its quarterly shipping record in the second quarter as it sent 139 cargoes from its two locations in Louisiana and Texas, said on Aug. 5 the company’s CEO Jack Fusco.

For the industry, there was a slowdown late in the second quarter in U.S. LNG exports due to the maintenance on several pipelines that deliver natural gas to U.S. LNG plants, according to a July 27 report from the Energy Information Agency (EIA).  

Henry Hub natural gas and U.S. LNG spot market prices have been lower than spot prices in other parts of the world, supporting the exports, the Energy Information Administration (EIA) said. 

Shell’s CFO Jessica Uhl separately said, discussing causes behind shutdown issues, that she did not believe it was indicative of Covid-related maintenance challenges.

LNG is natural gas frozen to condense its size about 600 times through cryogenic processing, The U.S. started to export LNG in February 2016.

Asia remains top destination

Cheniere, which owns facilities in Sabine Pass, Louisiana and Corpus Christi, Texas reported 45% of all shipments went to Asia, mainly China and South Korea.

The two nations account for over one fourth of all cargo deliveries.

About 35% of Cheniere’s shipments went to Europe and 20% to Latin America.

Brazil has bought energy to compensate for reduced hydroelectric power generation due to a drought.

Strong post-pandemic recovery

“We look forward to the same performance with the addition of Sabine Pass Train six early next year,” Fusco said, according to a transcript of the call by Motley Fool. The project is 90% complete.

“Globally, the pace of recovery in LNG markets from the COVID-related lows has exceeded most expectations,” said Anatol Feygin, chief commercial officer.

 “We continue to see a fundamentally tight market over the next several years breaking the trend for seasonal demand norms even with rebounding LNG supply,” Feygin added.

Global LNG demand expanded in the second quarter by 9% year-over-year, slightly surpassing the fourth quarter demand levels.

This occurred despite the second quarter historically being a “shoulder period” in the market, Feygin said.

US LNG production leads world

U.S. total LNG volume expanded 80% compared with last year. During 2020 and amid energy demand destruction related to Covid lockdowns, many LNG customers on long-term contracts exercised cargo cancellation rights and chose to pay penalties.

U.S. LNG production saw a 43% on-year increase or about 35 million tons in 2021 compared with last year. Non-U.S. volumes have lagged more than expected during so far in 2021 so far and remained below 2020 levels in June.

“These non-U.S. volumes were impacted by feed gas constraints in Trinidad, and maintenance and outages in North Africa and other LNG-producing regions,” Feygin added, according to a transcript of the call by Motley Fool.

EIA estimates

Besides Cheniere, other LNG exporters include Cameron LNG, Freeport LNG. Shell operates under a 20-year contract a plant in the East Coast that is majority owned by Kinder Morgan. 

Exports to Latin America also increased. Brazil, the biggest energy consumer in South America, is experiencing its worst drought in nearly a century, the EIA said in a July 27 report.

Pricing dynamics have also changed post-pandemic, the report said.

“Europe’s natural gas spot prices have historically been lower than prices in Asia; however, this year, Europe’s natural gas prices are tracking Asia's spot LNG prices more closely,” the EIA said.

U.S. LNG exports also increased because of new export capacity added in 2020.

The final liquefaction units were commissioned at Freeport, Cameron, and Corpus Christi LNG, and the remaining small-scale units were placed in service at Elba Island LNG in Savannah, Georgia, the EIA said.

The new units increased total U.S. LNG export capacity by a combined 2.7 Bcf/d for a total peak capacity of 10.8 Bcf/d, the EIA added.

Disparate issues

Shell’s chief financial officer Jessica Uhl said during a second quarter earnings call on July 29 that unplanned shutdowns across the industry are not indicative of maintenance delays as one of the analysts had suggested.

Covid-19 forced several maintenance delays of petrochemical plants and oil refineries in 2020 as social distancing and lockdowns prevented some scheduled turnarounds.

“While there have been maintenance issues happening in many assets within the Shell portfolio and across kind of the LNG industry, I'm not aware of it being a thematic issue around backlog maintenance,” Uhl said according to a transcript of the call by Motley Fool.

“It's been pretty disparate issues at play,” Uhl added.

 “So I don't think it's a backlog issue so much. As I said, there's a maintenance piece to it. There's a gas supply piece to it. That gas supply is coming from third parties,” Uhl added.

“I think some of these issues will resolve in weeks. Some of them will take some months. So I will expect some of this impact going into the second half of the year," she said.

The EIA said on Aug 16 that for the first time since U.S. LNG exports from the Lower 48 states began in 2016, annual LNG exports are expected to outpace pipeline exports by an estimated 0.6 Bcf/d this year.

By Renzo Pipoli