United States liquefied natural gas exporters are sending tankers to Asia to fill a gap in the region’s demand, as markets have tightened on surging consumption in China and Pakistan as well as Australia’s continuing struggles to ramp up scheduled production.
Benefiting from the Panama Canal expansion last year that allows bigger ships to cross from the Gulf of Mexico into the Pacific, around a dozen LNG cargoes from the United States have gone to Asia since December. Data in Thomson Reuters Eikon currently shows two LNG tankers, carrying a combined 280,000 cubic meters of gas, are currently crossing to Asia from Louisiana.
The US LNG exports are coming from Cheniere Energy’s Sabine Pass, Louisiana, facility that opened last year as the first US export terminal outside Alaska.
US spot natural gas costs just $3.21 per million British thermal units (mmBtu), while Asian spot LNG prices have soared over 80 percent since June last year to almost $10 per mmBtu.
“This run up in prices definitely took everyone by surprise. In mid-2016, I don’t think anyone expected LNG prices to double to reach $10 per mmBtu,” said Chong Zhi Xin, principal Asia LNG analyst at consultants Wood Mackenzie.
“Cheniere definitely did well [out of filling the supply gap], as they have been selling on a spot basis.”
Shipping brokerage Arctic Securities said this week that this Asian LNG premium meant “LNG traders [are] netting $1 million plus per US-Asia cargo.”
Along with Cheniere, Royal Dutch Shell, and Spain’s Gas Natural Fenosa (GNF) have been active exporters from Louisiana to Asia.
“LNG exports out of US to Asia is clearly an attractive deal which is benefiting the likes of Cheniere Marketing, and Shell/GNF, who own volumes at the first two trains,” Arctic Securities said.
The juicy arbitrage route is a result of Asian demand rising faster than expected.
Commodity trader Gunvor has won a major tender to supply 60 LNG shipments to Pakistan over a five-year period, starting this year, while Italy’s Eni will supply the country with 180 LNG cargoes over a 15-year period, a Pakistani energy official told Reuters this week.
The expected surge in Pakistani demand is occurring as colder-than-normal winter weather in North Asia has increased LNG requirements.
China’s 2016 LNG imports surged 30 percent from 2015 to over 25 million tonnes a year, making it the world’s third-biggest LNG importer behind Japan and South Korea.
Including India and Taiwan, the world’s five largest LNG consumers are now in Asia, using about 70 percent of globally traded LNG, according to the International Gas Union (IGU). Meanwhile, demand is stagnant in Europe, the next biggest import region.
Asia faster-than-expected demand is happening amid delays and outages at new export sites.
Chevron’s Gorgon export facility, which was launched last year in Western Australia, has had several outages due to technical trouble. Upcoming projects like Shell’s Prelude, the world’s biggest ever floating liquefaction vessel, and Ichthys – led by Japan’s Inpex – have had delays in expected first exports.
Still, the LNG market remains well supplied, with available LNG capacity standing 45 percent above demand last year, according to Eikon data.