We hear a lot about Asian markets eager to buy Canadian LNG.
That's a lie.
To extract, transmit, liquefy and ship Canadian methane to Asia requires a price of about $9 per million BTU to see any profit.
LNG prices in Asia recently fell below $4/MMBtu, down 40 percent from a year earlier. Prices in NW Europe (TTF) are down by nearly 50 percent, and Europe has record-high inventories for this time of year.
Mild weather in Asia, Europe and the U.S. have led to seasonally weak demand, with China in particular proving to be a disappointment to exporters. But a wave of new terminals coming online in the last year has also led to a huge increase in supply, dragging down prices.
That means that major markets will exit the winter season with plenty of inventory, which will likely prevent a price rebound. TTF prices (LNG in NW Europe) for summer delivery are trading at around $3.50/MMBtu. Some analysts think LNG prices could fall below $3 by the summer.
In other words, if mild temperatures persist, and the glut grows worse, U.S. LNG exporters not under contract may be priced out. The caveat is that some of the LNG trade occurs under rigid contracts.There's a reason Chevron is failing about trying to find a buyer for its Kitimat LNG plant project. There's a reason Chevron already had to write down the value of that project a full $2 billion. Nobody wants the stuff at anything near the price we need to turn a buck on it.
But even as some companies have shipments secured under contract, Goldman said that U.S. exporters would likely be the most affected by another decline in prices. “[W]e do not expect other LNG producers to balance the market by curtailing supply. This is consistent with our estimate that US liquefaction facilities face the highest variable cost among LNG exporters given that US gas needs to be bought from the grid as opposed to just getting lifted from the ground,” the bank said.
Then, as I discovered by checking the Barents Observer, the Chinese already have platforms on the Arctic Ocean drilling for methane. They have already discovered two massive gas fields off the Russian coast and they have a partnership deal with Russia's Gazprom to get that energy.
What in hell are we doing?