The U.S. took a big step toward becoming a major exporter of liquefied natural gas (LNG) in 2016 as Cheniere Energy’s Sabine Pass export terminal in Louisiana came online early last year and upgrades to the Panama Canal that opened in June made shipments to the Pacific region considerably easier. Data from the Department of Energy (DOE) through December 2016 show the U.S. exported 109 billion cubic feet (Bcf) of LNG through December 16, an average of about 0.3 Bcf/d for the year as a whole.
But the predominant destinations were not what most experts had predicted. Despite signs that U.S. LNG would seek out high-priced markets in east Asia and lower-priced-but-still-attractive markets in Europe, the majority of exports went somewhere else entirely: Latin America.
DOE data show that only two shipments went to Europe (one to Spain and the other to Portugal) while only a single one went to China, for a total of just 9.7 Bcf. Four shipments went to India, totaling 13.8 Bcf. Most of the rest went not east or west but south, to Mexico, Argentina, Brazil, and Chile.
Chile, in fact, was the largest recipient in both total LNG and total shipments, receiving nine totaling 26.4 Bcf. Argentina got six for 16.7 Bcf, while Brazil got four for 9.1 Bcf, and Mexico two, for a total of 7 Bcf. Those four nations accounted for 54% of total U.S. LNG exports for 2016. (The remainder went mostly to the Middle East.)
The unexpected shift was a combination of several factors that changed the shape of the global LNG market. Natural gas prices in Asia have fallen considerably since the early 2010s as oil-linked import contracts pulled gas prices down as oil prices fell. Once above $ 20/MMBtu in some areas, landed LNG prices in east Asia have fallen to levels comparable to Europe. Meanwhile, domestic supply constraints in several Latin American countries coupled with economic growth has pushed LNG prices in that region higher, in several areas above those in Asia.
That’s been the case in Mexico, which is still in the midst of a major reform of its energy market but has not yet seen enough production growth to keep pace with demand. Prices in Brazil remained above those in Europe and Asia for most of 2016, according to market data firm Gecko Capital, while upgrades to the Panama Canal have cut transit times to Chile in half and a revised toll structure intended to encourage LNG transits has reduced transport costs. In Argentina, meanwhile, rising demand, an electricity sector that relies on gas for 60% of its generation, and bottlenecks in supply have made for a volatile local gas market.
All four countries have moved to boost their natural-gas fired generation capacity in recent years, but the South American countries in particular have struggled with antiquated regulatory environments that have hindered domestic gas production, while droughts in some areas have pinched electricity supplies, making LNG imports more attractive.
The trend seems likely to continue as China struggles with an overcapacity crisis in its power sector while power demand in Latin America is poised for continued growth.
—Thomas W. Overton, JD is a POWER associate editor (@thomas_overton, @POWERmagazine).
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