Redrawing Trade Routes with US LNG

The fact that trade routes shift is not news to anyone in shipping. But it’s how they shift which can be of not only great interest, but also great consequence to a particular shipping segment. Here, we’ll take a look at some interesting shifts and expected developments for the LNG trade.

China-Australia relations are going to be a hot topic for the foreseeable future. Diplomacy has failed to stem a growing rift between these two major trading partners which looks to impact everything from coal to iron ore to LNG.

Prior long-term contracts have kept much of the existing trade between the two in place, but new agreements have been scarce in recent months. A once growing trade route between Australia and China, which increased LNG cargo mile demand between the two over 1,000% from 2014 -2018, has been stagnant since that time.

Source: VesselsValue – Australia to China Large LNG Cargo Miles

In fact, November of 2018’s cargo mile demand for this route has only been exceeded twice since that time.

Comparing 2021’s cargo volumes up to March 30 with 2019’s numbers shows that Australia to China volumes remain relatively unchanged meanwhile China’s overall import volumes are up nearly 20% during that same period.

That 20% volume increase had an even larger impact on cargo mile demand, as over that same period we witnessed a 48% increase in cargo miles traveled to China. This indicates that those new volumes are originating from areas much further away on average than previously existing cargo origins. This data also serves to once again underscore the fact that cargo volumes do not always tell the entire story.

With the US and China looking to shore up their relations following the implementation of the Phase One trade deal, we have seen LNG trade between the two go from non-existent in 2019 to composing a sizable portion of China’s overall imports.

Since the start of 2021, the USA has accounted for approximately 11% of the total LNG volumes imported into China. But the long-haul nature of this route means that those same shipments accounted for just under 20% of total cargo mile demand for imports into China.

The return of the US to China route has impacted other significant suppliers besides Australia, which also represent a short haul to China. Both Papua New Guinea and Malaysia witnessed increasing LNG exports to China over 2018 and 2019, when the US and China’s trade war was at its peak. But this alternate sourcing has ceased as US-Sino relations have warmed keeping volumes along these routes stagnant as of late.

Aside from politically inspired moves, there is the simple fact that a vast majority of LNG demand growth will be taking place in Asia, which already accounts for approximately 3/4 of total seaborne LNG demand, while a vast majority of upcoming liquefication capacity additions will be located across the world.

Source: DLNG

In fact, it was just announced that train 3 at Cheniere’s Corpus Christi facility has just commenced commercial operations, with a capacity of 5 million tons per annum. This will contribute to expectations of the US raising its available LNG export capacity by approximately 10% this year.

On a side note, there have been some concerns that the recent crude production downturn in the USA might impact feedgas. This will not be the case. Gas production was impacted far less than crude output and has almost returned to pre-C19 levels.

Source: EIA

As a result, there will be enough to continue supplying current and future LNG liquefication facilities, which is a good thing since they continue to soak it up, recently setting another record.

Source: S&P Platts

Here’s a shorter-term version of that chart with the breakdown by facility, which I found interesting.

Source: S&P Platts

In short, we can expect US LNG output to continue unrestrained by feedgas availability which should allow us to continue this spectacular LNG export growth.

Source: John Kemp – Reuters

Therefore, the trend of the US being a major and growing supplier for the foreseeable future looks sound. This is a major source of comfort as it has been the long haul from the US to the Asian demand epicenter which has allowed LNG cargo mile demand to vastly outpace volume demand these past years.

Getting back on track, growing Asian demand for US LNG isn’t just confined to developing China. Long time importers of LNG like Japan and S. Korea have seen their imports rise as well.

In fact, for full year 2020 compared to 2016, Japan and S. Korea take the top two spots in terms of adopting US volumes, rising by 6.6 bcm and 5.2 bcm, respectively. Meanwhile, China came in fifth spot after number three, Spain, and number four, the UK.

Of course, the trade war had a lot to do with China lagging, which is why warming trading relations would be good news for LNG. Additionally, the latest curb on MEG crude output, or perhaps increasing tensions in the region in 2020, has put more of an emphasis on US LNG. If we really want to be thorough in our critique, we can mention Australia’s several output challenges lately.  Nevertheless, excuses aside, the US looks to continue gaining market share for these long-haul destinations.

But no destination could be more exciting than India.

In recent LNG reports I hinted that India may be on the verge of becoming a regular customer of US LNG. 2021 has started off with a solid showing, as a large LNG carrier has been loaded on average at least every other week.

Source: VesselsValue – US to China Large LNG Cargo Mile Demand

In fact, it appears that the fastest growing LNG exporter to India so far in 2021 is the USA. This comes as short-haul suppliers Qatar, Nigeria, and Angola are all losing market share in India as of late. So, it’s not just that the US is gaining a foothold in what is projected to be the fastest growing LNG market over the coming decades, but they are doing so possibly at the expense of established short haulers.

All this would go a long way in explaining why US LNG exports to Asia increased by approximately 67% in 2020 and why that trend is likely to continue.