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US predicts price challenge for LNG developers

Narrowing spreads and price declines could pinch LNG operators: EIA

US liquefied natural gas developers may see pricing challenges in the next few years, according to a new report from the nation's Energy Information Administration.

Natural gas prices at the US Henry Hub and international benchmarks have already fallen dramatically since November 2018, driven by rising LNG supplies and slowing demand, the EIA said in its August Short-Term Energy Outlook.

The natural gas spot price at the UK’s NBP fell 49% from the beginning of 2019 to 1 August despite record-high temperatures in July, while prices for the Asian LNG spot price benchmark JKM fell by 52% during the same period.

According to the monthly report, the decline in international prices and fluctuating exchange rates have caused the Henry Hub-NBP price spread to fall by 63%, and the Henry Hub-JKM spread to fall by 65% since the start of the year.

"EIA expects LNG exports to continue to rise in 2019 and in 2020 as new liquefaction plants come online," according to the report.

"However, the narrowing price spreads may challenge the competitiveness of US LNG exporters after adding the cost of liquefaction and transport."

The agency forecasts natural gas spot prices at Henry Hub to average $2.36 per million British thermal units in the second half of 2019, which is 14 cents per million Btu lower than expected in the July report.

A number of US LNG facilities are due to come online this year, including the Freeport LNG facility in Texas, Kinder Morgan's Elba Island LNG project in Georgia, and the Sempra Energy-operated Cameron LNG facility in Louisiana, which has been cleared for commercial service. Those projects are expected to ramp up production next year as additional liquefaction units become operational.

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