If You Build It, Will They Come? The Competitiveness of US LNG in Overseas Markets
The explosion of US shale has brought expectations of great change for US LNG trade, increasing the volume of flexible cargoes available to markets traditionally dominated by long-term contracts between buyers and sellers. However, new supplies from the United States, combined with new production from Australia and elsewhere, have set the LNG market up for a glut that threatens to depress prices.
In a report by the Center on Global Energy Policy, the authors assess the factors influencing the competitiveness of US LNG around the globe, whether capacity will be curtailed in the near to medium term for economic reasons and how competitiveness of US LNG may evolve in the medium term.
Key Findings From the Report:
- Companies will likely make decisions about whether to utilize US LNG export capacity based solely on variable costs
- The arbitrage window (on a variable cost basis) to export US LNG to the main importing regions remains open, but the margins have become very tight
- Small changes in a number of variables can, at times, render US LNG exports uneconomic
- Full utilization of US export capacity seems unlikely, especially if overseas spot prices remain as low as some forecasts suggest