Global liquefied natural gas (LNG) markets are stronger than some might have expected as demand in China, India and Latin America is supporting prices, according to Houston-based research firm Zeus Development Corp. And this means LNG regasification terminals in the United States will want for cargoes, according to Barclays Capital analysts.
"The good news is that we never saw the 'market of last resort' scenario many expected, where cargoes would be dumped into U.S. Gulf Coast [USGC] terminals at any price," said Zeus CEO Bob Nimocks last week. "Certainly, imports into the USGC were higher this year than last, but demand in Asia, India and Europe never fully evaporated."
Last spring a number of market watchers predicted that the U.S. would be an LNG sink in the months to come (see NGI, April 20; March 2). The tide of opinion was turning, though, this summer when analysts at Barclays were among those calling off the LNG oversupply alarm. "Fears of a looming global LNG supply glut flooding the U.S. market with unwanted volumes pressured prices though most of H109. Nearly six months into the year, however, the tidal wave of LNG has not materialized, and expectations for future LNG import increases are being revised down," the Barclays analysts wrote four months ago (see NGI, July 6).
Gas sendout from U.S. LNG import terminals has been running higher this year than last. According to data out last Monday from Tudor, Pickering, Holt & Co. Securities Inc., sendout during the third quarter averaged 1 Bcf/d versus 0.9 Bcf/d in the year-ago quarter. In the second quarter sendout averaged 1.3 Bcf/d, up from 0.9 Bcf/d in the second quarter of 2008. In October sendout averaged 1.1 Bcf/d, up from 0.9 Bcf/d in October 2008.
In China, cargoes from around the world (e.g., Tangguh, Indonesia; Balhaf, Yemen; and Ras Laffan, Qatar) have been arriving into its three operating terminals at Fujian, Guangdong, and Shanghai, Zeus said.
Long-term contracts for more LNG are being signed. For example, China Petroleum & Chemical Corp (Sinopec) announced intentions to sign a long-term sale and purchase agreement with ExxonMobil to buy Papua New Guinean LNG. On Oct. 22 CNOOC said it had started construction of a fourth China import terminal at Ningbo, Zhejiang. Many more are planned to give China better negotiating leverage for Russian pipeline gas, Zeus noted.
In India spot prices for LNG cargoes have been climbing to around $6/MMBtu as winter in the Northern Hemisphere approaches. On Oct. 29, Gail Ltd. announced that it would buy a cargo from Repsol for late November delivery at an ex-ship price between $6.50 and $6.60/MMBtu.
LNG fleets are also enjoying higher charter rates with demand across four continental markets: Asia, Europe, North America and South America. Charter rates for standard-sized ships have risen from some $25,000 per day to more than $40,000 per day.
Rising prices are spurring new LNG project proposals. Zeus is tracking the advancement of plants in Australia, Papua New Guinea, Russia, Iran, Iraq, Egypt, Ghana, Nigeria, Cameroon, Gabon, Angola, Trinidad, Venezuela, Brazil and Alaska, the firm said. New import terminals and expansions are advancing in Brazil, Uruguay, Colombia, Jamaica, Chile, South Africa, Italy, Poland, Portugal, Israel, Dubai, Pakistan, India, Vietnam, Indonesia, Singapore and, of course, China, it noted.
Meanwhile, the greatest amount of LNG regasification capacity being added worldwide this year is coming online in North America -- where it's needed least, Barclays analysts said last week.
"This year Canada and the U.S. are adding 4.8 Bcf/d of capacity, and another 3.1 Bcf/d is scheduled for 2010," Barclays analysts wrote in a research note published Tuesday. "These facilities do not have firm contracts and will rely largely on spot or short-term contract purchases for supply. Strong growth of U.S. gas production has all but eliminated the need to import LNG at this time, and the bulk of the regasification terminals are standing idle in anticipation of better times."
According to the Barclays analysts, the ability of Asian countries to receive LNG should increase next year by nearly 1.7 Bcf/d. "But not all Asian markets are alike," the Barclays analysts wrote. "Japan and Korea, long established as the leading buyers in the LNG space, both tend to vary purchases with the fluctuations in demand driven by economic and weather trends. In contrast, Chinese, Indian and Taiwanese LNG consumption is still constrained by available regasification capacity."
Large additions to regasification capacity in Europe and the United Kingdom drove LNG takes to a record for the region this year. "European purchases grew by 1 Bcf/d as the continent rejected pipeline gas...By some estimates, pipeline supply to Europe may have dropped as much as 20% compared with last year."
The Barclays analysts predicted that U.S. and European price benchmarks "will be strongly linked in 2010." Europe will retain its premium to the U.S. market throughout next year.
"Our outlook for U.S. balances next year points to very limited ability of the U.S. to receive incremental LNG, and we expect regional price differentials to reflect this dynamic," they wrote.
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