A glut of new LNG supply coming on-stream after a relatively warm northern hemisphere winter has seen spot LNG prices plunge, putting a dent in the aspirations of the next generation of US LNG plant developers seeking to raise finance.
What has not upset the applecart is rising US gas prices. US gas production has risen almost inexorably despite low prices, benefitting from the co-production of gas with shale oil. Concerns had been raised that increased LNG exports, gas-for-power generation, gas use in refining and petrochemicals and other industries, as well as significantly higher pipeline exports to Mexico would combine to push up domestic US gas prices.
Not so, Henry Hub gas prices are bumping along below $3/MMBtu, while the sharp rise in flaring and venting in the Permian basin reflects not just infrastructure constraints, but the additional capacity of gas which could be brought to market – an estimated 661 MMcf/d in the first quarter, according to Rystad Energy. This would appear to support the new wave of US LNG projects which base their business cases on the expected long-term availability of cheap, essentially surplus, US gas.
US supply-side risk
However, just because concerns about higher US gas prices have not materialized does not mean they are misplaced. Surplus US gas is not simply a product of shale.
Canada has been slow to diversify its dependence of both oil and gas production on US markets, but movement is now taking place…