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Logistics Sending LNG to U.S., Says Market Watcher

Despite having "the worst netback in the world" for liquefied natural gas (LNG) imports right now, the United States is still drawing "a significant volume of LNG with all things considered," Waterborne President Steve Johnson told NGI.

"There's a steady flow of big ships coming this direction. Of course, a lot of that's being re-exported...It's surprising how much we're getting."

According to data compiled by Pan EurAsian Enterprises, 2011 U.S. LNG imports to date are trending lower than 2010 levels but higher than those seen in 2009.

For instance, the Golden Pass LNG terminal near Sabine Pass, TX, has "two big tankers on the water" to arrive before the end of this month, Johnson said. "They're sending out [regasified LNG] like crazy right now...so I think they're making room. It's my understanding they're done commissioning [see Daily GPI, May 11], but the sendout volumes that we're seeing right now indicate that they're either making room [for new deliveries] or they're still commissioning."

Johnson said one of the tankers due to arrive is a Q-Max and one is a Q-Flex, representing about 10 Bcf worth of gas, and there is the possibility of a third tanker, too. "We see a line of tankers heading for Golden Pass," he said. "It's interesting."

Golden Pass is a joint venture formed by affiliates of Qatar Petroleum, ExxonMobil and ConocoPhillips.

Despite much more attractive netbacks available in Europe, cargoes are still coming to the United States because of logistical issues, Johnson speculated. "I believe that the Qataris are in a logistical bind," he said. "I mean that they've got a lot of [LNG] volume coming out right now, record amounts of volume. It's crazy. In March they produced at 102% of nameplate capacity, which is enormous for supply that large.

"What we're seeing is in order to keep production running, they have to have a tanker there to load it. They have a sizeable fleet of Q-Max and Q-Flex tankers. These were primarily designed to go into the U.S. It's not a very attractive netback, yet we still see Q-Maxes and Q-Flexes heading this direction. You can't take the Q-Max tankers everywhere. I think that we're seeing these big tankers come into the U.S. simply because they've got to keep product moving and the U.S. can accept them."

Still, it's all relative, and overall imports of LNG to the U.S. are lackluster by comparison to the rest of the world, especially Asian markets.

Waterborne said in a recent edition of "The Asian Waterborne Report" that April imports of LNG to Asia increased 20.4% over the same month last year. "The most recent spike in imports to Asia was due in part by economic recovery and growth, but driven primarily by the shutdown of a significant amount of Japan's nuclear generating capacity following the devastating earthquake and tsunami in March," the report said.

Based on preliminary figures for the full month of April for each Asian country, and final March figures for Japan, South Korea and China, Waterborne also reported that April was the 19th consecutive month with a year-over-year increase in Asian LNG imports.

Were it not for Japan's tsunami and nuclear catastrophe, the United States could be seeing and additional 15 Bcf per month of LNG imports, Johnson said.

Waterborne reported that Japan imported 6,650 million metric tons of LNG in April, a "staggering" increase of 1,247 million metric tons of LNG or 23.1%. Most of Japan's incremental volumes were supplied through spot purchases from Qatar and Russia -- whose LNG exports to Japan were up 571,000 and 272,000 metric tons, respectively -- and time swaps with Korea Gas.

Based on recent announcements from the Japanese government about shutting down a number of nuclear plants that could be at risk for a major earthquake or tsunami, Waterborne projected that LNG imports to Japan are likely to continue to rise this year.

More LNG could be available to come to the United States next year when the Angola LNG project comes online, Johnson said. "It's my understanding the contract holders have not agreed on diversion clauses and that 100% of that product is earmarked for the U.S. Gulf," he said.

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