US LNG exports in line for new quarterly record

Author: Christopher Rene

2021/06/17

LONDON (ICIS)--US LNG exports are on course to set a new record for quarterly volumes in Q2, driven by robust production combining with high profit margins and a bullish demand outlook.

Global gas spreads indicate there will be strong competition for flexible LNG cargoes between Asia and Europe for the next quarter while fundamental data indicates a bullish outlook for US production.

NEW RECORD IN SIGHT

Quarter-to-date US LNG exports stood at 15.7m tonnes on 17 June, only 4% below the record-breaking 16.4m tonnes in the first quarter of this year, according to ICIS LNG Edge.

With just under half of June left, second quarter volumes are on course to surpass the second highest quarterly volumes of 15.9m tonnes, which was seen in Q4 last year, while closing in on a new record.

ASIA TOPS DEMAND

Supply into Asia – represented by the top five buyers of China, Japan, South Korea, India and Taiwan – accounted for the largest share of US LNG exports this quarter so far with 42% or 6.2m tonnes.

The Asian share was 49% in Q1 as freezing regional temperatures and a tight market sparked new price records for Asian spot LNG prices and boosted demand for US LNG. Asia’s share dropped this quarter with the close of the peak winter demand period.

China dominated Asian inflows with 1.9m tonnes, which already represents a new quarterly record. The previous high was in Q1 this year with just under 1.9m tonnes.

The latest data taken from LNG demand forecasts by ICIS LNG Analytics is bullish for China throughout the summer months with June and July LNG demand expected to be 25-30% higher year on year on strong economic growth and high summer temperatures.

EUROPEAN DEMAND GROWS

Supply into Europe accounted for 33% of US LNG exports this quarter so far, 5.3m tonnes. The European share was higher than the 25% recorded in the first quarter as tight supply margins – underlined by regional natural gas stocks operating at all-time lows – elevated the demand for LNG.

France dominated European inflows with 1.3m tonnes, which already represents a new quarterly record for the country. Its previous high was 1m tonnes for Q4 2019. However, the highest quarterly record for a European country belongs to the UK with 1.7m tonnes in Q1 2020.

BULLISH PRICE SIGNALS

High US LNG exports into Asia and Europe in the coming months are backed by global spreads. On 16 June, the EAX August ‘21 held a $6.22/MMBtu premium over the estimated delivered US cargo cost, when full-cost round shipping from the US Gulf to Japan is included.

In contrast, the TTF August ‘21 held a $5.40/MMBtu premium over the estimated delivered US cargo cost, when full-cost round shipping from the US Gulf to the Netherlands is included.

High EAX prices indicate the potential for a huge swing in LNG exports from the US into Asia for the third quarter compared to the second quarter. The US has become a key LNG exporter on the global stage with a strong ability to pivot to the highest priced markets. Qatar is also set to focus on Asia, putting Europe at a competitive disadvantage when compared to Asia.

Europe will still benefit from greater US production which is set to average around 6m tonnes across Q3, 4m tonnes higher year on year.

EAX prices retreated slightly in the second half of week 24 on factors including China looking to use relatively inexpensive pipeline gas compared to LNG and limited Japanese demand despite the upcoming Olympic games.

However relatively high Asian LNG demand is likely to prevent significant restocking of European storage sites ahead of the winter, a strong bullish signal to regional gas prices delivering in Q4. Supply tightness due to low storage levels and sluggish net injection demand is likely push the Dutch TTF Q4 ’21 above the Q1 ’22 according to recent ICIS analysis .