Market Snapshot: Expanded Panama Canal brings new competition to Asia-Pacific LNG market even with low Asian LNG prices

Release date: 2016-10-05

Global production of natural gas averaged 343 billion cubic feet per day (Bcf/d) in 2015 and roughly one-third of it was traded internationally. Of the 101 Bcf/d that traded internationally, 33 Bcf/d was traded by tanker as liquefied natural gas (LNG). By comparison, total natural gas production in Canada averaged 15 Bcf/d in 2015.

Although natural gas is a globally traded commodity, prices differ substantially between regions. In the Asia-Pacific, natural gas prices have historically been indexed to crude oil prices,Footnote 1 and during the high oil price period of 2011-2014, LNG import prices in Japan and Korea reached record highs of approximately US$16-18 per million British thermal units (MMBtu).Footnote 2 During that time, natural gas prices in North America generally remained below US$4 per MMBtu. This price gap incented numerous LNG export project proposals in Canada and the U.S. However, crude oil prices started decreasing in late 2014, and Asian LNG import prices followed suit.

Source and Description

Source: Trade Statistics of Japan, Korean Customs Service, GLJ.

Description: This line graph shows average LNG import prices in Japan and Korea compared to natural gas prices at Henry Hub in Louisiana and at NOVA Inventory Transfer (NIT) hub in Alberta, expressed in US dollars per MMBtu. Between 2012 and late 2014, Asian LNG import prices ranged between US$13/MMBtu and US$18/MMBtu while Henry Hub and NIT prices were generally below US$4/MMBtu. Since late 2014, Asian LNG import prices have declined to under US$6/MMBtu in 2016 while Henry Hub and NIT prices have declined to around US$3/MMBtu.

Despite the recent decline in Asian LNG prices, several projects have been completed to enable and increase LNG trade from North America to the Asia-Pacific, and many more projects have been proposed. In the United States (U.S.), Cheniere Energy’s Sabine Pass export facility in the Gulf of Mexico has been very active, exporting over 63 Bcf of LNG to overseas customers between February and July 2016. In July 2016, the first LNG vessel from Sabine Pass passed through the newly expanded Panama CanalFootnote 3 en-route to China. Several other U.S. projects are also under construction or undergoing regulatory review.

Although there are no LNG export plants currently under construction in Canada, many proposed projects are, or have been, the subject of various regulatory review processes. This includes the export licence review process of the National Energy Board. Most recently, on 27 September 2016 the federal government conditionally approved the Pacific NorthWest LNG project in British Columbia.

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