BofA Says Collapsing Oil Drags U.S. LNG Exports Down With It

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Plummeting crude oil prices have dimmed prospects for soon-to-start U.S. liquefied natural gas exports, Bank of America Corp. said in a note to clients Monday.

The gap between U.S. and global prices for the fuel has narrowed as oil’s collapse reduced the cost of crude-linked LNG contracts in Asia and Europe, Max Denery, an analyst at the bank in New York, said in the report. Oil in London has tumbled 25 percent this year, falling below $45 a barrel Monday for the first time since 2009, while U.S. gas has dropped 8.3 percent.

The reduced price advantage comes as Cheniere Energy Inc. finishes construction of its Louisiana export terminal, which is poised to send the first shipment of U.S. LNG from the lower 48 states before the end of the year. North American cargoes will enter the market as gas from newly-built Australian terminals adds to a global supply glut.

“Spare U.S. liquefaction capacity could aggravate the ongoing spot LNG market glut,” Denergy said in the report. “Longer-term, the critical question for LNG global prices is whether there will be enough demand to meet incremental supply from Australia and the U.S.”

Gas prices at the benchmark Henry Hub in Erath, Louisiana, would need to trade below $2 per million British thermal units to be attractive for new European long-term contract buyers, Denery said. Henry Hub gas would have to drop below $2.20 for U.S. LNG to win long-term Asian purchasers, he said.

Natural gas futures for September delivery at the hub fell 2.6 cents to $2.65 per million British thermal units on the New York Mercantile Exchange.

Cheniere fell $1.93 to $60 amid a broader rout in stocks. The shares have dropped 15 percent this year.

World demand for gas expanded 0.4 percent last year, the lowest rate since 2009, according to Bank of America. Imports have declined in China, where low oil prices are discouraging industrial users from switching to gas.

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