Liquefied Natural Gas Market, Supply and Demand

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The article American LNG Exporters Turn to Europe as Asian Demand Sputters deals with the changes in the LNG export market in the US. According to the article, the market is about to experience the boost in export demand, mainly from European countries. The limited supply of domestic LNG, drawbacks in production, and the decline of import from Russia are the main reasons for this.

The latest progress in the shale gas extraction, dubbed the shale revolution, also contributes to the predictions, possibly putting America among the world’s most formidable suppliers of gas, Qatar and Russia (Loh et al. 2015). Authors further reinforce their predictions by the example of Lithuania, who has recently signed a contract with the US LNG supplier, Cheniere Energy Inc. (LITGAS and Cheniere Marketing sign master trade agreement 2015).

In short, we can describe it in the following way: Europe’s domestic production of gas is gradually declining, and the required amount is not dropping (gas is characterized by low elasticity), thus the demand for imported LNG is expected to grow, doubling by 2020 (North America LNG: Project timelines 2015). This will result in the shift of the demand curve, raising the price Europe will be willing to pay for the gas. At the same time, America’s LNG supply is going to grow due to technological advancements (five liquefaction projects currently in construction) with as much as a sevenfold increase in production by 2019 (World Energy Outlook factsheets 2015).

This will create the shift in a supply curve, leading to the creation of the new equilibrium for Europe and the USA. The third player, Asia, is not growing as expected, so its demand curve does not shift. As of today, the prices of American LNG are not acceptable for Europe. For example, in 2014, the prices of the imported LNG in the European Union was 11,50 USD per MMBtu in January to 9,83 USD in December and decreasing steadily (European Union natural gas import price 2016).

Supply and demand diageam for the export LNG At the same time, the price of exported gas in the US in the same period fluctuated between 12,58 and 16,01 (Price of liquefied U.S. natural gas exports 2016). Thus, the equilibrium could not be reached. However, with the predicted massive shift in supply and the growing demand on the European side, the equilibrium will become more acceptable for both sides. If we take, for example, the amount of gas currently supplied to EU countries (World Energy Outlook factsheets 2015) and compare it to the perceived amount, we can see that none of these match the supply based on the current total export of the US (Price of liquefied U.S. natural gas exports 2016). However, both figures form an equilibrium with the US predicted supply, with suggesting the price of roughly 11 USD and just above 12 USD respectively.

As this analysis is based on estimated predictions rather than hard data, it is limited to the multitude of factors. It is based on the initial assumption that the growth will continue as predicted (as we have seen, this did not happen to the Asian market) and that the shale revolution phenomenon proceeds according to plan. Besides, it does not account for factors like domestic and industrial use of LNG, which change the picture considerably.