Falling global gas prices have already begun driving a shift in US LNG exports away from Asia in 2018 as offtakers target more opaquely priced and illiquid markets closer to US shores.
On Thursday the prompt-month Platts JKM, the benchmark price for spot-LNG cargoes delivered to Northeast Asia, lost another 10 cents, falling to just $7.075/MMBtu.
Over the last three months, waning winter gas demand in Asia has seen the contract lose more than $4/MMBtu, or nearly 37%, after reaching a three-year record high price in December.
As major LNG importers like Japan, China and South Korea pare back on spot-market buying, offtakers of US LNG have already begun responding to weaker netbacks by targeting markets closer to home.
Already this month, two-thirds of US export cargoes are targeting markets in Latin America, according to data compiled by S&P Global Platts Analytics. That figure contrasts sharply with export statistics from January when less than 20% of US cargoes were shipped to the region.
NETBACK MARGINS TUMBLE FROM RECORD HIGHS
During the recent winter months, high demand for spot LNG charters saw global shipping rates more than double from mid- to late 2017.
By mid-December, the LNG shipping cost from the US Gulf Coast to Asia surpassed $2/MMBtu.
While ebbing demand has seen those rates decline in 2018, S&P Global Platts still estimates the Gulf Coast-Northeast Asia shipping route cost between $1.50/MMBtu and $1.80/MMBtu, depending on the exact destination.
Including onshore, variable costs for US gas and pipeline transport, the profit margin on a Gulf Coast-origin cargo delivered to Asia is currently estimated at roughly $1.85/MMBtu, according to Platts Analytics.
Although still a healthy profit for exporters by historical standards, that margin has tumbled from a record high at nearly $5.25/MMBtu in late December. Based on prevailing forward swaps prices, current margins to Asia are likely to remain flat or continue weakening modestly.
Already though, US exporters have begun targeting cargo shipments to markets closer to home.
While the margin on LNG delivered to Mexico, Chile, Argentina or Brazil is more difficult to calculate, the results of a recent tender issued by Mexico’s Comision Federal de Electricidad, which was supplied from Sabine Pass at a price roughly equivalent to the prompt JKM, suggests that US exporters are already benefiting from a shift in exports away from Asia.
SUMMER 2017 EXPORTS TARGETED LATIN AMERICA, MIDDLE EAST
Last summer, when spot market LNG prices in Asia tumbled to less than $6/MMBtu, US exporters overwhelming targeted sales to markets in Latin American and particularly Mexico.
From April to July, when the JKM price averaged just over $5.50/MMBtu, Mexico received nearly 26% of total US LNG export cargoes, equivalent to nearly 67.5 Bcf. Including exports to Argentina, Brazil, Chile and the Dominican Republic, more than 42% of US cargoes, or about 110.9 Bcf, were delivered to markets in Latin America, Platts Analytics data shows.
While South Korea alone imported the second-largest volume of US LNG last summer, totaling 32.7 Bcf, importers in the Middle East including Egypt, Jordan, Pakistan and Turkey together, ranked third by volume, taking 20.5 Bcf from April through July.
Source: PlattsPrevious Next
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