Gas is dissipated over the Atlantic

Experts doubt that LNG from the US has bright future. 
Deliveries of American liquefied gas to Europe until 2020 are likely to be unprofitable and will not be able to compete with pipeline gas from Russia. Vygon Consulting estimates that the economics of LNG supplies from the US to Asia is also questionable due to low prices in the target markets, which casts doubt on the plans for growth in LNG production in America. In order to recoup investment in already built plants, all participants in the chain will have to optimize costs.

American LNG projects in the coming years are difficult to meet price conditions in key target markets - in Europe and Asia, according to a study of consulting group Vygon Consulting. European politicians and business in recent years have placed high hopes on the arrival of LNG from the US, which was supposed to lead to lower prices and create an alternative for Gazprom's gas. But analysts, evaluating the results of the first of the new American LNG plants Sabine Pass, whose two lines were launched in 2016, found its deliveries to Europe on average unprofitable ($ 0.6 per MBTU). Accordingly, they amounted to only 10% (0.4 million tonnes) of the total, while half of the LNG went to Latin America (margin - $ 2 for MBTU).

Almost all price risks for LNG export from the USA are born by buyers (usually large gas companies). They purchase gas for liquefaction at the current prices of Henry Hub's domestic market (HH, the price of a key US gas hub), pay for transportation (another 15% of HH) and liquefaction ($ 2.25-3 for MBTU on a liquefy or pay basis) As well as the freight of the gas carrier and technological losses. For the profitability of the supply, the amount of costs must be less than the price in the export market. If the price is below 115% HH plus freight, it is advantageous for buyers not to liquefy gas at all, their losses will be limited to a fixed fee for liquefaction capacity.

Vygon Consulting estimated the prospects of the US LNG by 2020, based on the forecast of the US Energy Ministry (EIA) for the price of HH, implying an increase to $ 3.6-5.4 per MBTU under different scenarios (now about $ 2.5). Even with a minimum price of $ 3.6 per MBTU, taking into account the growth in freight costs and LNG liquefaction, it is much more expensive than the probable gas price in Northwest Europe (Belgium). This means that there will be no direct competition between LNG and Russian gas. When delivered to Asia, the US LNG "goes to the market," but with difficulty (see chart). The gas price for Belgium in 2020 is calculated on the basis of the contract for import of LNG from Qatar (with oil binding) and oil prices $ 63 per barrel. The price range for the Asian direction (Japan) is $ 8-9 per MBTU based on the World Bank forecast.

The authors of the study link the controversial prospects of American LNG projects to the fact that contracts for them were concluded in 2012-2013. Then the price difference between HH and North-West Europe was $ 8 for MBTU, between HH and Asia - $ 12, and by the beginning of 2016 the differential was reduced to $ 2 and $ 4, respectively. But six LNG plants are already under construction, and their capacity should grow from 9 million tons now to 23 million tons by 2018, 41 million tons in 2019 and 73 million tons in 2020. As a result, the US should become the world's second largest producer of LNG after Qatar. Vygon Consulting believes that participants in the US LNG sales chain will have to cut costs in order to avoid losses, and construction of additional capacity (the bids reached 390 million tons) is in doubt.

But the example of the shale gas industry in the US shows that local companies can seriously cut costs, says Valery Nesterov of Sberbank Investment Research, noting that the development of LNG exports also has political support from US authorities. He also admits that the price level for HH may not grow as much as in the EIA forecast, which will improve the LNG export economy. But plans to increase exports in excess of already under construction 70-80 million tons, in Mr. Nesterov's opinion, really look unrealistic. On new LNG-projects for a while against the backdrop of low prices there may be a "lull," the analyst believes, which will affect both the US and the world industry, including Russian projects.