The impact of US LNG exports and the prospects for price-competitiveness in the East Asian market

Abstract

US Liquefied natural gas (LNG) export projects have attracted significant attention and expectations. US LNG with a production capacity of over 60 million tonnes per year will be indexed to Henry Hub prices, Henry Hub being a natural gas hub in the state of Louisiana, America. US LNG was regarded as a great way of reducing the LNG import cost to Asian importers which were experiencing increased LNG import costs. Rocketing LNG import costs resulted from rapid demand growth and high international LNG prices in the early 2010s and motivated discussions about de-linkage of LNG prices from crude oil prices among Asian importers. Increased domestic oil production led to the fall of the US crude oil imports, which brought down the crude oil price in the international market. Oil price falls resulted in a disappearance of the price advantage of US LNG over traditional crude oil-indexed LNG. Price-competitiveness of US LNG will be weakened if Henry Hub prices go up. Under the current low oil price market environment, the most notable influence of US LNG exports into the Asia Pacific market is a strengthening of competition, resulting from large volumes of LNG supply within a relatively short period of time, in conjunction with Australian LNG projects rather than the impact of the introduction of the new Henry Hub pricing system and its possible replacement of the existing oil indexation pricing system. The true meaning of a consumer ‘fair price’ based on gas to gas competition will only be achieved by the creation of functioning regional liquid natural gas or an LNG hub in Asia.