OGEL: US LNG Competition Evaluation and Export Prospects

Mar 1, 2018

This article analyzes the competitiveness of US LNG exports, considering a range of factors including the structure and special features of US LNG export contracts, LNG plants capacity and supply outlook, potential markets for the United States liquefied natural gas, as well as relation between cost of supply and import prices in Europe, the Asia-Pacific region and Latin America. This paper defines the key features of the US LNG business model and its impact on final markets. With the launch of Sabine Pass Train 1, the revolution on the global LNG market did not occur. Almost 90% of the US natural gas is sold under long-term contracts that, as is the case with Russian gas, contain the "take-or-pay" clause: importers must purchase LNG under FOB terms, regardless of gas withdrawal volumes, and undertake to pay the liquefaction fee for previously agreed capacities.

This business model not only covers the risks of failing to achieve cost recovery at American LNG plants, but also guarantees export volumes nearing the contracted capacity of new plants. Given that European and Asian buyers have reserved 48 million tons of annual capacity before 2020, these volumes are likely to appear on the market. Since long-term contracts are flexible enough, about 60% of capacity does not have a destination country specified in the contract, the final market for US LNG is determined by the economic viability of organizing exports to a particular region. In the article we analyze how much profit or loss will US gas importers generate and whether US LNG will compete with Russian gas.

Full text is available at the link below.

Head of Research