20 min
My Favorite Mistake - Shifting Global Dynamics Affect Japanese LNG Players with U.S. Supply Contracts RBN Energy Blogcast
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- Business
Of the 10 Bcf/d, or more than 75 MMtpa, of nameplate LNG export capacity currently operational in the Lower 48, Japanese companies form the largest single group lifting U.S. cargoes. Their commitments total ~2 Bcf/d of U.S. liquefaction capacity. However, Japan’s LNG consumption has been falling over the past two years, and in 2019 and 2020, U.S. LNG accounted for only 0.6 Bcf/d and 0.8 Bcf/d of Japanese imports, respectively, or about 20% of the country’s total LNG demand in each year. In other words, Japanese companies have made commitments for incremental LNG from their remotest supply option against a backdrop of falling domestic demand. In all cases, the Japanese players have opted not to buy FOB from producer projects, but instead have booked capacity at the Cove Point, Cameron, and Freeport LNG export facilities — all plants that require offtakers to secure and transport the feedgas supply for LNG production. This type of arrangement carries with it the need to set up gas trading desks in the U.S., with front-, middle- and back-office personnel, plus operations staff, representing additional fixed costs. What was the motivation for these commitments, made by no less than seven of Japan’s major LNG buyers, how successful have they been, and what lies in store for these volumes that the country does not appear to need? Today, we look at where these volumetric commitments fit, not only in the portfolios of the capacity holders but within the broader context of LNG commerce and commoditization.
Of the 10 Bcf/d, or more than 75 MMtpa, of nameplate LNG export capacity currently operational in the Lower 48, Japanese companies form the largest single group lifting U.S. cargoes. Their commitments total ~2 Bcf/d of U.S. liquefaction capacity. However, Japan’s LNG consumption has been falling over the past two years, and in 2019 and 2020, U.S. LNG accounted for only 0.6 Bcf/d and 0.8 Bcf/d of Japanese imports, respectively, or about 20% of the country’s total LNG demand in each year. In other words, Japanese companies have made commitments for incremental LNG from their remotest supply option against a backdrop of falling domestic demand. In all cases, the Japanese players have opted not to buy FOB from producer projects, but instead have booked capacity at the Cove Point, Cameron, and Freeport LNG export facilities — all plants that require offtakers to secure and transport the feedgas supply for LNG production. This type of arrangement carries with it the need to set up gas trading desks in the U.S., with front-, middle- and back-office personnel, plus operations staff, representing additional fixed costs. What was the motivation for these commitments, made by no less than seven of Japan’s major LNG buyers, how successful have they been, and what lies in store for these volumes that the country does not appear to need? Today, we look at where these volumetric commitments fit, not only in the portfolios of the capacity holders but within the broader context of LNG commerce and commoditization.
20 min