The tentacles of US LNG are spreading

Author Kwok Wan

The reach of US LNG is growing, but Australia isn’t worried yet.  But should it be?

The reach of US LNG is growing, but Australia isn’t worried yet.  But should it be?

I was interested to see this quote by an Australian gas firm on the impact of US liquefaction on its export project.

"The impact of LNG coming from the US Gulf of Mexico is unlikely to substantially alter the margin above our cost of production for APLNG," Origin Energy chief executive Grant King said after the firm released its result for the 2015-16 fiscal year ending 30 June.

Origin Energy is saying it sees little impact on spot prices in Asia-Pacific from increased US LNG flows with the widening of the Panama Canal, or on the profitability of its 9mn t/yr Australia Pacific LNG (APLNG) venture. Origin and ConocoPhillips each own 37.5pc of APLNG, with Sinopec holding the remaining 25pc. APLNG’s first train started in January. It expects shipments to start from its second train by the end of this year.

Although most of APLNG’s volumes are locked into oil-linked supply deals, excess volumes will be sold on the spot market.  Stakeholder Sinopec is also the majority offtaker, but the Chinese oil firm is oversupplied with LNG.  So it will be looking to cancel or sell its APLNG cargoes on the spot market.

But the US is starting to move in on Australia’s patch. US LNG exports from the 25mn t/yr Sabine Pass project started this year. So far, only a single 5mn t/yr liquefaction train is operational. So far, the cargoes have gone to regional neighbours in the Atlantic basin such as Brazil, Argentina, and to Europe. But LNG is already reaching the Middle East, India, and China, which also import Australian LNG.

And this is only the first train. Another 5mn t/yr is expected to be operational by the end of the year. And five trains in total from this single project. Actually, 70mn t/yr of US LNG export is already under construction, with other projects in various approval stages.

Here is a graph of the northeast Asian and Atlantic basin LNG prices tanking over the last 18 months or so.

[caption id="attachment_1568" align="alignleft" width="738"]Blog image 1 Copyright Argus Media[/caption]

Mind you, US LNG exporters might also be finding it hard to make the economics work, with the US-Argentina trade seemingly unable to cover costs on a point to point basis.

Or to put it another way:

[caption id="attachment_1567" align="alignleft" width="374"]Copyright Source:[/caption]