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Record Liquefaction at US LNG Facilities Faces a Spring Slowdown
19 February 2021
Record LNG feed gas demand, courtesy of a strong Asian pull on
LNG cargoes, has supported US natural gas demand this winter as
above-normal temperatures slashed domestic residential and
commercial space heating demand.
Feed gas deliveries averaged 11.0 Bcf/d in December and reached
a daily peak at 11.6 Bcf/d on December 13 amid strong global gas
prices, commissioning activity at Corpus Christi's train 3, and
seasonal demand growth in export markets - Mainland China LNG
demand was up by 35% year-on-year in December, for example (see
Figure 1). Soaring spot prices continued into the start of 2021 as
Northeast Asian spot LNG prices for February 2021 delivery reached
$33.65/MMBtu in mid-January, a new daily record.
IHS Markit's expectation is that the global gas market will
return to a state of oversupply this spring, similar to what took
place in 2020, causing US LNG export capacity utilization to
decline as it plays the role of global balancing mechanism once
again.
In Europe this winter the diversion of cargoes to Asia and a
particularly strong power market increased the call on natural gas
storage withdrawals to balance the market. Inventories fell below
the five-year maximum as a result, providing more storage capacity
to fill this injection season. Despite the prospect of incremental
spare storage capacity, we still expect storage injections to slow
down at a certain point in the summer. The resulting pressure on
European gas prices would render the market less attractive to US
LNG off-takers.
Our assumption is that US LNG facility utilization begins to
soften in April, and by May, US LNG feed gas demand will be 45%
lower than it is currently (see Figure 2). That low utilization
will likely hold through September, leaving more gas at home and
elevating end-October gas inventories to near the five-year average
at a $2.70/MMBtu Henry Hub summer price level.
If, however, US LNG export utilization doesn't pullback as per
our current view, either in timing or magnitude, the US storage
injection trajectory could look very different. Lower inventories
could support higher Henry Hub prices, particularly in the third
quarter. It is possible that the global gas and LNG market may turn
out to be tighter than expected this summer and present an upside
risk to US LNG exports. Global LNG demand could be higher than
anticipated, and there may be unforeseen LNG supply disruptions as
occurred in 2020. Shipping constraints that have beleaguered global
LNG supply chains this winter could lift amid an expectation for
added LNG tanker tonnage this year. Most scenarios yield some
degree of gain in US LNG export demand for the year, which, in
turn, has implications for US storage injections (see figure 3). US
gas inventories play a significant role in shaping Henry Hub price
movements.
