US LNG Sets Sail Into Height of Hurricane Season

The Atlantic Basin hurricane season is under way and headed into its most active period. The overall season is already expected to be very active, with an above-average potential to disrupt US LNG exports. An active hurricane season is very bullish news for a market already on a historic bull run with prices tripling from February. Earlier this week, Northeast Asian spot LNG prices gained another 35¢ to $17.50 per million Btu, according to Energy Intelligence assessments for deliveries four to eight weeks ahead -- a five-week gain of $3.90. Spot LNG prices in Southwest Europe leaped $1.65 to $16.55/MMBtu, a four-week gain of $4.25 (LNGI Aug.17'21). "The Atlantic Basin hurricane season will be closely watched this year for its effect on US LNG exports, especially in light of the extremely tight LNG market this year," said Ian Nathan, director of Global LNG Research at Energy Intelligence. Active Season Colorado State University (CSU) published its annual hurricane forecast in April and expects a busy season. The season runs from late May to end-November, with its most active months usually being September-October. The forecast features a total of 17 named storms this year, including eight hurricanes (LNGI Apr.8'21). CSU's latest forecast, in early August, is nearly identical and continues to call for above-average activity. Hurricane Fred hit the Florida Panhandle earlier this week. Hurricane Grace is headed for Mexico and Hurricane Henri is currently brushing the Northeast US coastline. A key metric is the probability of a hurricane landfall on the US Gulf Coast, which is home to most US LNG capacity. CSU sees a 41% chance of a Gulf Coast landfall -- from the Florida Panhandle westward to Brownsville, Texas. This is above the full season average of 30% over the last century. Shock Absorber US LNG has become the world LNG market's shock absorber, with contractual cargo cancellations during down markets and surges in LNG output in up markets. LNG prices hit record lows from April-July 2020, which led to a raft of US LNG cargo cancellations. Approximately 150-200 US LNG cargoes were canceled with the majority canceled over the summer months last year. Since then, LNG demand has soared, bringing US LNG output back up to full capacity. Without that shock absorber -- or with a temporary hurricane-induced absence -- LNG markets could discover new heights. Resilience Siting several massive terminals in a hurricane-prone region might seem ill-advised, but the Texas-Louisiana Gulf Coast covers such a wide expanse that even a destructive weather event means only a small portion of the region's total export capacity is likely affected (see map). At the west end of the region is Brownsville, Texas, the site of three proposed LNG export terminals; at the east end is Cameron, Louisiana, about 340 miles away. That is roughly the same distance from Tokyo to Osaka, or from London to Edinburgh. The resilience was demonstrated last year, when two hurricanes -- hurricanes Delta and Laura -- slammed into Louisiana, briefly shutting in Sabine Pass and Cameron LNG (LNGI Oct.12'20). US LNG export terminals in Texas -- hundreds of miles from the storm paths -- compensated for the downtime in Louisiana, taking in a surge of feed gas supply. Feed gas to Cameron LNG was down to zero for two days before post-Delta recovery began and down to zero for 31 days post-Laura. Feed gas to Sabine Pass continued without interruption during Hurricane Delta, although dipping to a low of 1.5 Bcf/d. Sabine Pass saw feed gas down to zero for eight days post-Laura. In response, feed gas surged at Texas-based Freeport LNG and Corpus Christi LNG. Feed gas even surged into Sabine Pass to compensate for downtime at Cameron. That resilience is expected to be even more pronounced this season because, unlike last year, Cheniere's Corpus Christi Train 3 is now operating (LNGI Dec.9'20). Michael Sultan, Washington