More Than Half of U.S. LNG Is Destined for Europe, WoodMac Says

  • Europe's proximity makes it attractive LNG destination
  • Sabine Pass first shipment will spur U.S. export wave

Europe is set to be the key destination for liquefied natural gas supplies from the U.S. after prices fell in Asia, the world’s biggest consumer of the fuel, according to Wood Mackenzie Ltd.

The U.S. is forecast to ship about 55 percent of its total LNG production, or 32 million metric tons a year, to Europe by 2020, according to Alex Munton, the Houston-based principal analyst for Americas LNG at Wood Mackenzie. That’s because Europe is so close, has ample import capacity and liquid markets, and now has prices nearer to those in Asia.

The U.S. will this quarter dispatch its first tanker from the Sabine Pass plant in Louisiana, marking the start of a wave of export projects resulting from the nation’s shale-gas boom. Atlantic basin producers are focusing on Europe as the premium consumers such as Japan used to pay has mostly disappeared amid waning demand and more supply from Australia and Papua New Guinea.

“A significant amount of LNG will end up in Europe,” Munton said by phone on Wednesday. “The spread between European and Asian prices disappeared and based on the proximity to the Gulf Coast, Europe will become a more attractive market.”

Flows from nations surrounding the Atlantic Ocean to areas around the Pacific fell 16 percent to 82 million tons in 2015, Wood Mackenzie said in an e-mailed research note Wednesday. European net imports of LNG increased 14 percent to 37 million tons, according to the report.

U.S. LNG in Europe will be competitive after gas prices at the benchmark Henry Hubin Louisiana fell amid warmer weather, according to Bloomberg New Energy Finance, which last month estimated the delivery price at about $5 per million British thermal units. The U.K. front-month contract settled at $4.60 on the ICE Futures Europe exchange on Thursday.

Diversification Opportunity

For Europe, U.S. LNG will diversify its sources as the region is now dependent on Russia for about a third of its supply, while domestic production is declining.

By 2025, net gas imports will make up as much as 77 percent of the European Union’s demand, up from 63 percent in 2013, according to the International Energy Agency’s World Energy Outlook 2015.

Europe’s liquid trading hubs can absorb cargoes that aren’t needed in Asia. South Korea’s Kogas, a buyer of U.S. LNG, agreed with EDF Trading Ltd. to jointly market LNG. Cheniere Energy Inc., which is developing the Sabine Pass and Corpus Christi LNG plants in the U.S., also has deals with EDF Trading and Engie to bring LNG to French or other European terminals.

About 60.5 million tons a year of U.S. LNG is under construction and slated to start up through 2019, UBS AG said in a research note Wednesday.

“The real supply build will start to kick in, from the U.S. particularly, from 2018, and in Australia as well,” Wood Mackenzie’s Munton said. “You still have got a lot of trains that will be ramping up through the remaining years of this decade.”

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