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World gas trade is changing

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LNG Industry,

Bloomberg are reporting how a cargo of chilled natural gas hauled from Louisiana in late December has become a symbol of how global trade is changing for a fuel increasingly seen as a cheap, cleaner-burning option for countries from Latin America to China and India.

The tanker Maran Gas Achilles passed through the Panama Canal and was headed toward Asia when it made a sharp u-turn in the Pacific towards Mexico’s Manzanillo terminal on the southwest coast, where it unloaded.

The abrupt route change shows how the US is creating a new paradigm in an industry that once revolved almost entirely around longterm contracts with set destinations. Exporters of US LNG are seeking the best price at any given time. As US exports grow, it is a strategy that could shift the economics of LNG toward an emerging spot market akin to oil.

The US stands to become the world’s third-largest exporter by 2020, when it is expected to ship approximately 8.3 billion ft3 a day of capacity, or 14% of the world’s share. 

US natural gas futures traded at US$2.866 per million British thermal units on 8 March, compared to the latest assessed spot LNG price in Singapore of US$5.652 as of 6 March.

Having gas delivery that is not fixed by destination represents a new type of supply that will undoubtedly lead to more flexible contracts being signed elsewhere around the world. US terminals made another key break from the global norm by pricing LNG off of the country’s benchmark Henry Hub in Louisiana instead of tying it to the price of oil.

Cheniere was the first to ship shale gas abroad. The company is now in the process of starting up its third plant and, alone, is expected to own 7% of the world’s export capacity in 2020.

In its first year, Cheniere shipped 56 cargoes to 17 countries, including Mexico, China, and India. Last week, it reported its first quarterly earnings gain since 2010.

Prior to the start of US exports last year, Asia and Europe were seen as the likeliest customers. Gas production in Europe is declining as demand grows and, in some cases, countries have expressed a desire to displace pipeline imports from Russia, seeking to diversify their supply at a time of unsettled geopolitics.

However, while analysts and traders watched whether Europe would emerge as a big buyer, Mexico, which already imports the most US gas by pipeline, quickly became the largest importer of shipped-in LNG from the US, followed by Chile. China, South Korea and Japan boosted buying during the winter. Perhaps the most unexpected customers were in the Middle East, as Jordan, Egypt and the UAE took in tankers in the backyard of the world’s largest supplier, Qatar.

For natural gas, it’s ‘a new world order’ that not only promises to establish the US as the swing provider, but also allows emerging countries to take advantage of low prices.

Egypt, Jordan and Pakistan are already taking advantage of the change by using tankers docked at their shores that are basically floating factories, able to convert chilled fuel shipped into the country back into gas so it could be distributed on their pipelines. Outfitting ships with regasification plants are a third of the cost of building an onshore facility, and can be installed in a quarter of the time.

The real test for US LNG will be in 2018 when Dominion’s Maryland terminal begins operating along with Gulf Coast terminals planned by Freeport LNG Development LLC and Cameron LNG.

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