South America Becomes Home for U.S. Shale Gas Amid Rising Demand

Source: Bloomberg

September 29, 2016

by Anna Shiryaevskaya, Naureen Malik

U.S. liquefied natural gas was supposed to go mainly to Asia and Europe, lured by prices as much as four times higher than those at home. So far, South America has been the destination of choice.

Thanks to a global glut that depressed prices, Cheniere Energy Inc. has sent more than half of the LNG tankers from its Sabine Pass terminal in Louisiana to South America. Premiums once available in Asia and Europe disappeared and those regions are well-supplied from elsewhere.
 
The U.S. is poised to become a major player in global LNG markets as a rising supply of shale gas provides more than the domestic market can absorb. Latin America is hungry for the power plant and heating fuel from its northern neighbor as the region lacks reliable energy sources of its own. The regional trade is easier as larger tankers can now use the Panama Canal, cutting travel time and cost.

“It’s certainly been good timing for all the parties,” said Ted Michael, a Genscape Inc. LNG analyst in Boulder, Colorado. “Cheniere is coming on and Latin America is looking for a more consistent supply.”

Seventeen of the 33 cargoes shipped from Sabine Pass have gone to South America since exports began in February, according to vessel-tracking data compiled by Bloomberg. Chile was the leading recipient with nine, three of which traversed the expanded Panama Canal. The canal can cut travel time to Chile from the U.S. Gulf by about 11 days, according to Bloomberg New Energy Finance.

A shipment to Chile cost $5.60 per million British thermal units from Sabine Pass in July, according to data from the U.S. Department of Energy. The average month-ahead price in the U.K. was $4.63, according to ICE Futures Europe, while spot LNG in Singapore traded at an average of $5.16 in July. U.K. gas slumped 45 percent in the past two years and spot LNG tumbled 60 percent. U.S. gas futures declined 25 percent in the period.

Spot LNG in Singapore rose to $5.557 on Monday, compared with $4.72 for U.K. futures. U.S. gas for October delivery fell 6.4 cents to $2.932 per million Btu at 10:23 a.m. in New York.

In Brazil, the biggest LNG importer in South America, LNG demand will vary depending on hydro, analysts Anne-Sophie Corbeau and David Ledesma wrote in a book published this month, LNG Markets in Transition: The Great Reconfiguration.
Argentine Demand

Future LNG demand in Argentina, where gas use is typically higher in the Southern Hemisphere’s winter, will in part depend on development of its own unconventional resources, they said. Chilean LNG demand is forecast to increase for use in power plants, industry and at homes, according to the analysts.

“The fact that most of the early Cheniere exports are heading to Latin America is not surprising, given that the region is relatively close geographically,” Alex Tertzakian, an analyst with Energy Aspects Ltd. in London, said in an e-mail. “In the longer term, the region’s LNG