U.S. Gas Set to Enter Global Market as Flood of Supplies Looms

  • Cheniere plans to ship first LNG cargo from U.S. in January
  • Global LNG supply seen at 500 billion cubic meters by 2020

Cheniere Energy Inc. plans to ship the first liquefied natural gas cargo from the U.S. in January, joining a flood of supplies that’ll allow buyers access to cargoes from all corners of the world.

Consumers will soon be able to get the supercooled fuel “at a moment’s notice,” Cheniere Chief Executive Officer Charif Souki said at the Singapore International Energy Week on Monday. Global LNG supply is expected to climb to 500 billion cubic meters by 2020, with Australia and the U.S. contributing the most to supplies, Fatih Birol, the executive director of the International Energy Agency, said at the event. About 325 billion cubic meters were traded in 2014, according to the Paris-based IEA.

U.S. gas supplies boosted by the nation’s shale boom are poised to deluge global markets at a time when prices for deliveries to Asia are near five-year lows. They’ll compete with cargoes from Australia to Qatar for market share as producers add a record amount of capacity next year while buyers in Asia demand more say in contract negotiations.

"It’s easy for me to believe in markets as the U.S. has the cheapest gas available on a global basis,” Souki said. “And it seems we are also able to produce liquefaction projects on a much cheaper basis than the rest of the world. With those two components, we have the cheapest source.”

Price Slump

Earlier this month, Cheniere cleared the latest hurdle in its bid to become the first LNG exporter in the continental U.S. after winning approval from federal regulators to deliver and store refrigerants at its Sabine Pass LNG terminal in Louisiana. The company has signed supply agreements with companies including BG Group Plc, Gas Natural SDG SA, Korea Gas Corp. and GAIL India Ltd.

LNG for delivery to northeast Asia has tumbled 32 percent this year to $6.90 per million British thermal units in the week to Oct. 19, after slumping 45 percent in 2014, according to WGI data compiled by Bloomberg. Prices fell to $6.45 through Oct. 5, the lowest level since at least June 2010.

In the future, about 3 to 4 LNG cargoes each from Qatar and Australia as well as 3 from the U.S. will be “ready to go to any destination,” Souki said, without giving a timeframe. In order to support the development of a trading hub in Asia, where he sees “exciting” growth, Cheniere plans to supply one cargo a month to the spot market in the region by mid-2016.

Trading Hub

Singapore plans to set up a domestic secondary gas-trading market in its bid to become a regional center for LNG, making way for the potential establishment of a gas futures market, S. Iswaran, a minister of trade and industry, said on Monday. While the city-state is competing with Japan, the world’s largest importer of the fuel, for hub status, Souki says both centers can co-exist as demand increases.

“I’m pretty sure the market will come back,” said Souki, referring to the recent slump in prices. “You don’t make a decision like this based on what’s going to happen in the next six months. You make it on what you think is going to happen over the next 20 years. U.S. gas supplies will remain very large for a very long time.”

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