LNG Pricing: Is US LNG competitive in North East Asia?

Out of the 8.3 Mt of US LNG exports recorded in the first 8 months of 2017, 2.37 Mt was exported to the North East Asian countries (29%). This represents a remarkable development given the fact that the US did not send any cargo to North East Asia in 2016.

On average, US LNG has turned out to be the most expensive LNG supply source in the region, priced 18% above the average regional LNG import cost. However, a country by country analysis shows that the US LNG was indeed priced close to the average price of LNG imports for China and even lower for South Korea and Taiwan. Japan is the only country in the region which pays a price for US LNG well above both its average cost of imports ($12.26 vs $8.04, a 52% extra-cost) and regional spot price indexes.

Average LNG import prices in North East Asia (Jan-Aug 2017)

Source: Cedigaz LNG Service

US LNG was even 13% and 7% cheaper respectively than Qatar LNG for volumes supplied to China and South Korea and was more expensive than Qatar LNG in Taiwan only because Taiwan pays remarkably low prices for its long-term Qatari supplies (around 30% lower than China and South Korea and 23% lower than Japan).

Figure: 1.0 Japan average LNG Price                  (Jan-Aug ’17)                                           

Figure: 2.0 China, South Korea, Taiwan average LNG price (Jan-Aug’17)                      

Source: Cedigaz LNG Service

It is also interesting to note that the average LNG import price paid by China ($7.21/mmbtu) and Taiwan ($7.32/mmbtu) is observably lower than that of Japan ($8.04/mmbtu) and South Korea ($7.96/mmbtu). This difference is linked to a wide range of factors mostly related to the structure of the supply portfolio (share of spot purchases) and historic commercial price negotiations of long term contracts with LNG suppliers.

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Cedigaz is an international association with around 80 members worldwide, created in 1961 by a group of international gas companies and the Institut Français du Pétrole Energies nouvelles (IFPEN). Dedicated to natural gas information, CEDIGAZ collects and analyses worldwide economic information on natural gas, LNG and unconventional gas in an exhaustive and critical way.