Energy Insider: Natural Gas

U.S. Poised to Become a Major Player in World LNG Markets

by Bob Shively, Enerdynamics President and Lead Facilitator

“It’s a once in a generational market movement for the fast-evolving LNG market.”
~ Marc Howson, Director of LNG Market Development, S&P Global Platts

We noted in our Energy Currents blog last June that the U.S. is on the cusp of a large increase in liquefied natural gas (LNG) exports that will make U.S. LNG an emerging player in world natural gas markets. Since then, U.S. exports have continued to surge:

US exports of LNG

Source: U.S. Energy Information Administration (EIA)

The growth in exports isn’t expected to abate anytime soon as export capacity continues to grow:

Source: U.S. Energy Information Administration (EIA)

U.S. LNG exports in 2017 created new demand for U.S. gas supplies equivalent to about 3% of consumer usage. This is expected to increase to almost 7% by 2019 according to forecasts from the EIA. 

In a recent webinar titled “Heating up: the rapid evolution of the LNG market” presented by S&P Global Platts, the impacts of LNG export growth were discussed by various analysts. Here is a quick summary:

A surprising amount of U.S. LNG is going to Asia:

As new U.S. export terminals were developed, it was assumed by many that cargos would initially go to Europe since all U.S. LNG export terminals are located on the eastern side of the country. Shipments to Europe have lower transit costs, and cargos to Asia must pass through the Panama Canal. But, as shown below, price differentials combined with large demand have made Asia the best market.
LNG prices

Contract terms for LNG deals are shrinking:

The average length of term for LNG sales agreements has fallen dramatically. Just a few years ago 15- to 20-year terms were the norm. In 2017, the average was five years. Why the huge change? Because new uncommitted supply in the market from the U.S. and Australia gives buyers the flexibility to keep deal lengths shorter. Also, market reforms in some consuming countries are reducing the capability of buyers to pass through supply costs in regulated pricing.

Gas market-based pricing is becoming more common:

Historically, the majority of LNG contracts were priced indexed to oil prices. Now more contracts are being priced indexed to gas benchmarks. Common benchmarks are Henry Hub and Platts Japan Korea Marker (JKM).

Hedging is becoming common:

As gas markets become more volatile and buyers have less opportunity to pass through costs in regulated pricing, the importance of gas price hedging has grown. Trade in JKM derivatives has hit record levels in recent months. Market participants active in hedging are similar to market participants in the continental gas markets of Europe and the U.S. as LNG becomes more of a competitive market. According to Platts, about 32% of JKM hedging is done by marketers, 30% by utilities, and 24% by producers with the remainder done by banks and hedge funds.

LNG as a marine fuel is set to grow:

New International Maritime Organization (IMO) regulations require ships to reduce air emissions. One likely strategy is that ships will convert to use of LNG as a fuel (called LNG bunkering). Use of LNG bunkering is expected to grow twenty-fold over the next decade, thus creating a new source of LNG demand.

A second wave of North American projects may approach investment decisions:

The first wave of U.S. LNG expansion projects will come to fruition in the next two years as shown in the LNG capacity graph above. An open question is whether there will be a second wave to be constructed by the mid-2020s. Low-cost gas supplies in the western regions of Canada and the U.S. are looking for a home, and possible future development of shale gas in Mexico could create an additional source of low-cost gas. Projects proposed include Jordan Cove in Oregon, three projects in British Columbia, and Costa Azul in Baja California, Mexico. If these projects are to move forward in the 2020 timeframe, they will need to obtain user contracts and financial backing soon. 

And as everyone in the U.S. always asks, is this going to make our domestic gas prices go up? As discussed in our earlier blog on the topic, the key is whether U.S. production will be robust enough to serve the growing export demand while also supporting U.S. consumption. One Platts analyst suggested that in the short-term exports will help support market prices (i.e. keep them from falling below today’s levels) but won’t increase them much.  Longer term it is harder to say. Our conclusion from the June 2017 blog article remains the same. If producers find it difficult to produce low-cost shale gas supplies due to technical, political, or environmental reasons, then assumptions about price could change quickly. So as with most things associated with natural gas, it will be important to keep a watchful eye on the market fundamentals.

Could your workforce benefits from learning more about LNG markets? Enerdynamics can come to your offices to deliver our Global LNG Industry Basics and Market Impacts seminar. For more details contact us at (866) 765-5432 x700 or

Back to Energy Insider