As a major gas producer and LNG exporter in the world, the United States continues to increase its influence on the global LNG supply side, and still has a large potential for incremental supply in the future. The United States is the world's largest natural gas producer, accounting for 24.2% of the world's total production in 2022. In recent years, with the construction of LNG export facilities, the LNG export volume of the United States has increased significantly. In 2017-2022, the LNG export volume CAGR was 43.6%, and in 2023, it will become the world's largest LNG export country, and there is still a large potential for incremental supply in the future.
IGU predicts that the global LNG liquefaction capacity will increase by about 130 million tons from 2024 to 2028, of which 56 million tons will be added in the United States, accounting for 42%. The United States is expected to become the world's largest source of LNG supply increment in the future. In terms of price, the US gas pricing model is highly market-oriented. Since 2023, in the context of strong oil and weak gas, the US gas source competitiveness linked to the HH index has become increasingly significant.
From the perspective of cost curve and long-term trend, HH's price may be at least 2-3 dollars/million British hot in the long run. The total cost of natural gas exploitation in the United States varies widely from basin to basin. There are three types of production areas with zero marginal cost, low cost and high cost, accounting for 25%, 37% and 38% of the total natural gas production in the United States, respectively. For some major oil producing shale oil and gas basins such as the Permian and Yingtan, as the companion of shale oil, the marginal production cost of shale gas is 0. As long as the oil price is above the closing cost of $31/barrel, shale gas will be produced sustainably, and the output will not be affected by low gas prices. The full cost of gas production in low-cost production areas such as Appalachia is 1.77-2.43 US dollars/million British thermal, which can be converted into costs of about 0.7-1 US dollars/million British thermal. When the price of HH gas drops to 1-2 US dollars/million British thermal, the profit statements of natural gas producers in this area are mostly in a loss state, but most will still choose to continue production because of positive operating cash flow and expected gas prices to improve. The full cost of high cost gas fields such as Hainsville and Utica is about US $2.5-3.5 per million British thermal power, and the variable cost is between US $1-1.4 per million British thermal power. When the gas price drops to 1-2 US dollars/million British thermal, some manufacturers in this region have negative operating cash flow and are willing to reduce production. The production reduction measures of some high cost manufacturers facing low gas prices may form some support for HH gas prices in the United States.
Looking ahead, the price elasticity of natural gas supply in the United States is relatively large, and the output is expected to match the rapid growth of its liquefaction capacity. By 2023, the total capacity of LNG liquefaction export facilities in the United States will be about 121.55 billion m3/year. The first phase of the 2024Q3 Plaquemines liquefaction plant is expected to be completed, with an additional 13.86 billion m3/year of liquefaction capacity. If it is put into operation as scheduled, it is expected to drive the US domestic gas price to rise slightly in the second half of the year. In 2025, the United States is expected to add 28.56 billion cubic meters of liquefaction capacity per year. At that time, there may be a gap in the supply of natural gas in the United States. However, reviewing the relationship between gas prices, oil prices and the growth trend of natural gas production in the United States in recent 10 years, we can see that the supply of natural gas in the United States is more flexible to prices, which is mainly due to the low difficulty of natural gas exploitation in the United States and the low marginal cost of production increase. We judge that when the HH price is above $3/million British thermal, the US natural gas production is expected to release rapidly. Without extreme weather and extreme geopolitical conflicts, the likely rate of US production growth can match the large-scale investment in the capacity of liquefaction export facilities in 2025-2027. In the long run, the probability of HH gas price center rising significantly is low.
From the perspective of the cost of exporting countries, the CIF price in Asia is 7-8 dollars/million British dollars, which has strong support. The unit liquefaction cost of typical LNG projects in the United States is about US $2-3/million British heat. Assuming that the HH price is within the range of US $2-3/million British heat, we estimate that the LNG cost from the United States to China is about US $7-8/million British heat. The US LNG export price is at a relatively low level in the world, and accounts for a large proportion in the global spot market. We judge that there is limited space for the Asian CIF price to further decline in the current position.
Considering the global LNG export production capacity and pricing, it is expected that the gas source of the Long term Association of the United States will have both low-cost and stable supply advantages in the long run. According to IGU statistics, by the end of 2022, the global LNG liquefaction export facilities have a total capacity of 478 million tons, IGU estimates that the global LNG liquefaction capacity will increase by about 130 million tons in 2024-2028, including 56 million tons in the United States, accounting for 42%, 31 million tons in Qatar, accounting for 24%, 10% in Canada and Mozambique, and 5% in Russia. 1) For the global LNG long term association market, when the Brent oil price is higher than $65/barrel, the American HH long term association has a strong price advantage. The LNG Long term Association of the United States is mostly linked to the HH price. According to our calculation, the CIF price of the LNG Long term Association of the United States in China is 7.3-8.45 dollars/million British thermal. The export prices of other LNG exporting countries, such as Qatar, Russia and Mozambique, are usually linked to the oil price. We estimate that when the current oil distribution price is 80 dollars/barrel, the CIF price of China is about 10 dollars/million British heat, which is significantly higher than the price of the HH linked long-term agreement in the United States. Assuming that HH price returns to the range of US $2-3/million British heat, when the oil distribution price is above US $65/barrel, the CIF price of China linked to oil price is above US $8.3/million British heat, which is higher than the export price of the US LNG Long term Association. We expect that the prices of Qatar, Russia and other countries will still be higher than those of the United States under the condition that the oil distribution price does not decline significantly. 2) From the perspective of spot cost, the LNG spot released by the United States, Canada, Mozambique and other countries has significant cost support, while the LNG spot released by Qatar and Russia has the possibility of low price, but the scale is limited. The landed cost of LNG exports from the United States to China is about US $7-8/million British thermal. The LNG export cost of Canada and Mozambique is close to that of the United States. We expect that the total capacity released by the above countries will account for 52% in 24-28 years. We expect that under the logic of cost support, the LNG capacity released by the above countries will not have a significant impact on the price center in the long run. The LNG export costs of Russia and Qatar are relatively low, and there is a certain possibility of low spot prices, but the scale of spot quantity is limited. According to our calculation, the Chinese landed cost of Russian LNG is about US $5-6/million British thermal power, and that of Qatar LNG is about US $3/million British thermal power. We estimate that the above two countries will release 29% of their production capacity in total in 24-28 years, most of which are long-term agreements. A small number of LNG spot released by the two countries in the future will have a certain probability of low prices. By the end of 2023, China's listed urban gas companies and American suppliers have signed 10 long-term LNG agreements linked to HH prices, with a total resource of 12.2 million tons/year (about 17.08 billion m3/year), most of which will be implemented in 2026/2027. ENN has signed five HH linked long-term agreements, with a total resource of 7.4 million tons/year (accounting for 61%), of which 900000 tons/year is under implementation, and 6.5 million tons/year will be implemented in 2026. China Gas signed three HH linked long-term agreements with American suppliers, with a total resource of 3.7 million tons/year, and Fosun Energy signed two HH linked long-term agreements with American suppliers, with a total resource of 1.1 million tons/year. Considering that the U.S. HH price rate is still in the range of $2-3.5 after 2025, the LNG Long term Association linked to HH is expected to maintain a high competitive advantage.
Investment suggestion: The United States is a major gas producer and LNG exporter in the world, and its influence on the global LNG supply side continues to increase, and it is expected that there will still be large incremental supply potential in the future. Since this year, some manufacturers have reduced production under low gas prices or formed some support for HH gas prices. We believe that the reasonable hub of HH gas prices is US $2-3/million British heat. Due to the great price elasticity of natural gas supply in the United States, after the launch of American liquefaction capacity in 25-27 years, the approximate growth rate of its domestic production can match the rapid growth of its liquefaction capacity. From the perspective of Asian import gas price, the spot CIF price of LNG in China has dropped to a low level in nearly two years. Under the cost support logic of exporting countries, we expect that the gas price center is expected to be basically stable after the large-scale launch of global LNG export capacity in 25-27. Considering the launch and pricing of global LNG export capacity, The LNG Long term Association of the United States is expected to have both low-cost and stable supply advantages for a long time. The LNG Long term Association signed by China's urban gas companies is expected to bring long-term gas source competitiveness to urban gas companies. In combination with the above, we believe that the city gas company with the gas source of the United States Association for Long term Development is expected to continue to benefit from the cost competitiveness brought by the low price resource advantage, and can also increase the spot purchase efforts, further optimize the upstream resource pool, and achieve profit improvement. Expected objects of benefit: 1) A-share natural gas companies: ENN, Shenzhen Gas, Fosun Energy; 2) National urban gas companies (H shares): ENN Energy, Kunlun Energy, China Resources Gas, China Gas.
Risk factors: extreme weather, geopolitics and other factors lead to significant fluctuations in global oil and gas prices; The construction process of LNG liquefaction capacity is not as expected; The growth rate of natural gas consumption was lower than expected.
