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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Is U.S. LNG Too Expensive For Asian Markets?

The liquefied natural gas (LNG) market is returning to life. With prices in the critical Asia market stabilizing, on the back of news that China’s January imports surged 40 percent year-on-year — continuing a trend toward rapidly-rising gas use here.

There’s been a lot of speculation that U.S. LNG producers can grab a big share of this growing market. With first-ever exports from America recently sailing to Japan and South Korea.

And now, the first numbers on export economics for those destinations are hitting the street — and they don’t look great.

Japanese trade data released Friday showed that U.S. shale gas imports have been very costly. Coming in at nearly double the price of other suppliers.

Japanese Ministry of Finance reports showed that importers paid $645/tonne for 211,237 tonnes of U.S. LNG during January. A full 67 percent higher than the average price paid for all imports, which came to just $386/tonne during the month.

Costs for U.S. shipments were substantially higher than Japan’s lowest-cost imports — which came from Angola, at a cost of $337/tonne.

In fact, the next-highest-cost supplier to Japan — Brunei — only charged $416/tonne. Still considerably cheaper than American imports.

Here’s the critical thing. When the U.S. LNG export space was starting up, many observers pegged the costs for shipments to Asia at between $12 and $14/MMBtu. A range many analysts said was uncompetitive with other suppliers globally.

And this week’s data confirms those forecasts. With the price tag for U.S. imports equating to $13.10/MMBtu. Related: Cooking The Books? Saudi Aramco Could Be Overvalued By 500%

Those numbers are indeed disconcerting — especially when compared to other big exporters like Australia. With that nation being the top supplier to Japan during January, at a cost of just $384/tonne, or $7.80/MMBtu.

Japanese buyers brushed off the high prices, saying U.S. supply is important for “diversification”. But numbers like this will almost certainly be a deterrent to larger-volume purchases of U.S. LNG — making American gas a swing supplier here, dependent on pricing fluctuations.

Watch for more data from Japan and beyond in Asia to see if U.S. suppliers can bring down the rates. If not, U.S. LNG may end up being more connected to closer-at-hand markets such as Europe and South America.

Here’s to getting the bill.

By Dave Forest

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  • JHM on February 28 2017 said:
    The LNG market is enormously overpriced relative to wind and solar. With wind and solar offering power at $40/MWh, there is no long-term price for LNG above about $5/mmBtu or $250/t. LNG is just a short-term play.
  • paul on February 28 2017 said:
    JHM, you cant be serious?? coal has long said it can produce at $4/MWH, but is not a clean fuel source. so my $100 per month electric bill would now be $1000 per month using wind and solar. that's not going to happen. all the money spent to convert coal powered plant to NG will just go to the wayside? no chance...in fact if wind and solar weren't subsidized they'd all be bankrupt...just a fact...
  • AP on March 01 2017 said:
    JHM wishful thinking see Germany utilities situation during this winter.
  • ofir on March 09 2017 said:
    keep in mind that they are talking about spot pricing, not a real contract. real contract price
    (longer term commitment) would cost $6. that would be composed from $3.5 for the ng
    and $2.5 for facility usage, shipping, profit.

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