The shale revolution has left the U.S. flush with natural gas, and changed our focus from building facilities to import liquified natural gas (LNG) to the construction of export terminals in just a few short years—no small feat when you consider the cost of these projects runs into the tens of billions of dollars. As these export terminals come online, American LNG will travel by ships around the world, and, as the FT reports, will be sold in a very different manner than what the LNG market is accustomed to:
Up to now, the majority of LNG contracts have been priced over crude oil. But Cheniere plans to use a pricing formula linked to the Henry Hub US natural gas benchmark price, in an example of the weakening hold of the oil-indexed contracts over the market.
Fewer deals may be structured for a long period of time, say a decade or more, as supplies increase and as the price of LNG moves away from being linked to that of oil.
This spot-pricing will help limit the gap in pricing in various regional markets, a development that will especially be welcome in Asia, which over the last four years has paid a significant premium for the liquified hydrocarbon.
Currently shale gas has stayed in the U.S., but analysts predict that in just four years America will account for more than 20 percent of global supplies, bested only by Qatar and Australia. We’re not only flooding the global LNG market, we’re transforming it. That’s yet another sign of the extraordinary transformative power of shale.