The United States has turned into the world’s swing producer of liquefied natural gas (LNG) as liquefaction capacity has tumbled in recent months amid an LNG glut, low prices, and weak demand in the pandemic, IHS Markit said in a recent analysis.
Before the COVID-19 pandemic, the LNG market was already oversupplied because of gushing new liquefaction capacity from the United States, Australia, and Russia.
The weak demand and record-low natural gas and LNG prices in major markets, including Asia and Europe, have led to cancellations of at least 20 cargoes of U.S. LNG in recent weeks.
Operators are also postponing investment decisions in view of the weak market fundamentals. Sempra Energy, which initially targeted the final investment decision (FID) for the Port Arthur LNG project for Q3 2020, said earlier this month that “Given current market dynamics, a final investment decision is now expected for the project in 2021.”
The glut and the low prices have resulted in declining utilization at U.S. liquefaction plants which were operating at full capacity until recently, IHS Markit says.
Over the past two months, deliveries of feedgas to U.S. liquefaction plants have dropped from 9.5 Bcf/d as of late March to 6 Bcf/d as of the middle of May, according to data from IHS Markit.
“The inevitable has happened. U.S. LNG capacity utilization has begun a turndown in response to market forces exacerbated by COVID-19. We are witnessing an historic event where U.S. LNG is taking on the new role of swing supplier,” Terrell Benke, executive director, IHS Markit, said in a statement.
Total U.S. LNG capacity utilization has declined to 65 percent and further drops are coming in the summer, when utilization rates could drop below 50 percent, IHS Markit said.
“The outlook for US LNG exports this summer is bearish. Current forward prices indicate that US LNG is out of the money through at least September. Additional cargo cancellations will follow. It all adds up to continued pressure and a new source of supply flexibility in the global gas market,” said Matthew Shruhan, senior analyst, IHS Markit.
