Watch out for a US Gulf Coast FOB index to emerge first
For now, though, it is the US Gulf Coast that is emerging as the most important LNG trading point. Unlike European hubs and JKM, it is a supply hub. But it is characterised by growing liquidity and fungibility and is traded in relation to Henry Hub, the most liquid gas hub globally. Exchange-traded instruments recently announced from both the Intercontinental Exchange Inc. (ICE) and Chicago Mercantile Exchange (CME) will facilitate price discovery. It could soon become what the Newcastle FOB price is to the global thermal coal market.
US exports are currently averaging one cargo per day. This could rise to four per day within the next five years, more than 90% of which will be produced in the Gulf Coast. There are many sellers – some 20 or so foundation customers across the four Gulf Coast terminals. Some volumes have already been sold to third parties under long-term contracts, and in other cases are mainly intended for specific markets. But these 'committed' volumes are a small proportion of the total. The rest is fully flexible, de facto spot LNG.
Gulf Coast LNG will be liquid andfungible. The close proximity of the four big terminals in the Gulf Coast means they are practically equidistant to world markets. They are all of the same construction vintage and will all source feedgas from the US grid. From a gas quality standpoint, LNG cargoes from these facilities will be interchangeable.
Flexible volumes are currently being sold in various ways, through short-term tenders as well as intermediaries. By 2020 US LNG will account for a fifth of global LNG trade (with most of that spot traded volumes) and competition to secure spot LNG cargoes will intensify, with traders coalescing around a Gulf Coast FOB price. Increasingly, it will interpret the sentiment of the global LNG market, establishing itself as a global LNG hub.