The big squeeze
DEEP DIVE: US LNG margins are about to be crushed by immense cost & price pressures
The Trump administration wants the world to buy more US liquefied natural gas to rebalance America’s trade deficit. The trouble is, LNG is losing its allure amid a bruising trade war of Donald Trump’s own making and the onset of a new global gas pricing regime.
With bond markets in turmoil and tectonic shifts in the global security order, the US LNG industry is entering choppy waters. Margins are about to be crushed in a pincer movement of tariff-induced cost inflation and tumbling energy prices in key import markets.
Right now, as the effects of the 2022 energy crisis linger, American shale gas is still considerably cheaper than premium-priced demand centres in Europe or Asia.
Large price differentials (spreads) mean there are decent profits to be made from buying natural gas at Henry Hub prices, liquefying it on the Gulf Coast, and shipping it across the Atlantic to Rotterdam or through the Panama Canal to Tokyo.
But that economic calculus is on the cusp of a rapid debasement. New financial analysis published today by Energy Flux exposes the extent of the problem, and how quickly it could unfold.
Using detailed modelling of US LNG cost inputs, commodity futures and original scenario analysis, this Deep Dive reveals:
💥 US LNG netbacks have fallen ~90% since the 2022 energy crisis —> Are we returning to Covid-era shut-ins?
💥 Full lifecycle cargo profitability is on track to fall below zero this decade —> What does this mean for America’s world-leading role in the global LNG mix?
💥 Several plausible future energy scenarios present major downside risks to netbacks —> Who are the likely bag-holders and can they reduce their exposure?
This post also explains the cost components and unique contracting considerations of US LNG, which could mitigate some — but not all — of the worst effects of the economic maelstrom that’s brewing for America’s primary energy export.
💥 Article stats: 2,000 words, 10-min reading time, 11 charts and graphs