Supplying liquefied natural gas to the growing (LNG) Asian market has become more expensive for US producers this year, Rystad Energy said in report, adding that even so, US exporters are unlikely to repeat last year’s cost-related shut-ins as global demand has rebounded to strong levels.
Instead, US LNG exports climbed to a record monthly high of 6.5 million tonnes in May and may keep rising to new peaks.
Rystad Energy estimates that the short-run marginal cost (SRMC) of US LNG exports to the Asian market has risen to about $5.60 per MMBtu as of June 2021, up 65% from $3.4 per MMBtu in mid-2020 and 30% higher than last year’s average of $4.30 per MMBtu.
The SRMCs of currently operational liquefaction projects globally have risen this year due to a jump in transportation costs for LNG, driven by higher charter rates and fuel costs. On top of that, costs in the US have also been boosted by a recovery in domestic gas prices.
Despite the lower SRMC of LNG to Asia last year, the US was still the most expensive supplier globally. As the TTF gas prices in Europe and Asian spot LNG prices fell below $2 per MMBtu in mid-2020, US exports took the largest hit, resulting in shut-ins as buyers canceled cargoes.
Rystad said it estimates that about 12 Mt of US LNG exports were shut in last year as a result of the market crash. “We do not see any signs of LNG shut-ins in 2021, but we do see a shift in the SRMC of global LNG and in the cost-of-supply curves. Instead, US LNG production will reach 72 Mt in 2021, its highest annual level on record, under an assumption of no shut-ins,” said Sindre Knutsson, vice president on Rystad Energy’s gas markets team.
Despite the significant cost increase, the US is not the most expensive supplier to Asia this year, however. The comeback of Egyptian LNG to the market has seen the North African country assume the role as the marginal supplier of LNG, with an SRMC of about $6.30 per MMBtu. Still, the strong demand of 2021 is expected to absorb even these costs, as Asian spot LNG prices are around $12 per MMBtu.
Meanwhile, the high transportation costs also affect producers located closer to Asia. For instance, the average cost of transporting Qatari LNG to Tokyo, Japan, has increased to $0.90 per MMBtu in 2021 from about $0.75 per MMBtu in 2020. By comparison, delivery of US LNG to Tokyo has seen an increase in voyage costs to about $1.90 per MMBtu in 2021 from $1.45 last year (already included in the US SRMC), the rport said.