US LNG vs Qatar LNG

LNG Tanker

US LNG export capacity under construction is nearly overtaking operational capacity in leading global exporter Qatar. The US surpassing Qatar would mark a complete turnaround in the global gas market.

The final investment decision taken on 1 July on the 5mn t/yr train five liquefaction unit at Cheniere’s Sabine Pass project means the US is only one train away from topping Qatar’s capacity.

The US is now building five LNG export projects with peak capacity of 74mn t/yr, fast approaching Qatar’s 77mn t/yr. Sabine Pass alone will have 25mn t/yr of peak LNG export capacity, with this single project having larger liquefaction capacity than the whole of Nigeria.

And Cheniere has received all necessary regulatory approvals to build a sixth liquefaction train at Sabine Pass. Cheniere has said it will need to sell 3mn t/yr of capacity from train six to finance it and has not yet signed any deals for the expansion. A sixth train would take total US LNG export capacity to 79mn t/yr — overtaking Qatar, but not Australia, as new projects there are expected to take its liquefaction to over 100mn t/yr by 2020.

Cheniere’s train five will target Europe. Total has secured 2mn t/yr of liquefaction capacity from train five and UK firm Centrica has contracted for 1.75mn t/yr. The companies will pay $3/mn Btu for 20 years for their capacity, whether they take LNG or not, plus US Henry Hub gas costs. This is a fixed cost of around $314mn/yr for Total and $274mn/yr for Centrica. But US LNG is sold on a fob basis, which means the LNG can be taken to any market, depending on who is paying the most.

The UK is likely to be an importer of US LNG, but the amount will depend on the attractiveness of alternative higher-priced markets and how US offtakers handle fixed liquefaction fees. On today’s prices, US LNG to the UK would be profitable in the first quarter of 2017, first quarter and fourth quarter of 2018, first and fourth quarter of 2019, and first quarter of 2020. But if the $3/mn Btu fixed liquefaction fee is removed from the calculation and treated as a sunk cost, US LNG to the UK would be profitable at all times in 2016-20.

It is unlikely that offtakers would send large amounts of loss-making LNG to the UK. Concerns may include further depressing the NBP price if a large quantity of LNG is shipped, which would result in higher losses from further LNG deliveries from the US. And European offtakers have gas fields and positions in the European gas pipeline market, making it even less likely that they would flood the market with unprofitable US LNG.

US LNG exports have already and will continue to change the global gas market. Just like Qatar did. And just like Australia will.