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Costs of supplying

US LNG to Asia rise

A new report has found that the cost of supplying US LNG to Asia rose this
year, but US production of the fuel is still anticipated to hit record highs

COMMENTARY THE cost of supplying US LNG to Asia has LNG exports were shut in last year, but added
risen this year, a new report by consultancy Rys- that it does not see any signs of shut-ins in 2021.
tad Energy has found. This has been attributed
WHAT: primarily to a jump in transportation costs for Short-run marginal cost
The cost of supplying US LNG, driven by higher charter rates and fuel The short-run marginal cost (SRMC) of US LNG
LNG to Asia has risen this prices, and has also affected other producers of exports is the main focus of Rystad’s new report,
year, according to a new the super-chilled fuel. However, the consultancy which was unveiled this week. The consultancy
report by Rystad Energy. went on to say that despite the rise in costs, US found that the SRMC of US LNG exports to
LNG production would hit a new record high of the Asian market had risen to about $5.60 per
WHY: 72mn tonnes in 2021. million British thermal units ($154.90 per 1,000
This is primarily The findings come as both US production of cubic metres) as of June 2021. This marks a
attributed to a jump in LNG and Asian demand continue to grow, and 65% increase from $3.40 per mmBtu ($94.04
transportation costs for the world opens up in the wake of the worst of per 1,000 cubic metres) in mid-2020 and a
LNG, driven by higher the coronavirus (COVID-19) pandemic. Rys- 30% increase on last year’s average of $4.30 per
charter rates and fuel tad is not the only one forecasting that US LNG mmBtu ($118.94 per 1,000 cubic metres).
prices. production will reach record highs this year. The As well as being affected by rising transporta-
US Energy Information Administration (EIA) tion costs – a global trend – Rystad noted that US
WHAT NEXT: projects in its latest Short-Term Energy Out- LNG costs had also been boosted by a recovery
US LNG production is still look that LNG exports will hit a new record in in domestic natural gas prices. Indeed, the EIA
forecast to reach record 2021 – with the trend therefore also extending projects that the Henry Hub spot price will rise to
highs in 2021. to production. $3.19 per 1,000 cubic feet ($90.34 per 1,000 cubic
If these expectations play out, it will mark a metres) in 2021, from $2.11 per 1,000 cubic feet
turnaround for the US LNG industry compared ($59.76 per 1,000 cubic metres) last year.
with the summer of 2020, when depressed Interestingly, the US was the most expen-
demand amid the pandemic led to numerous sive supplier globally last year, despite the lower
cancellations of US cargoes. While US LNG SRMC of LNG being shipped to Asia, but is
was already seen to be rebounding by the end of not expected to be the most expensive sup-
2020, the cancellations resulted in liquefaction plier to Asia in 2021. This is because Egypt has
plants on the Gulf Coast shutting in output. Rys- restarted LNG exports, becoming a marginal
tad has estimated that about 12mn tonnes of US supplier, with an SRMC of about $6.30 per

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