A picture taken on June 05, 2010 shows t

A few Asian buyers of US LNG are looking to sell portions of the supply they purchased under long-term contracts, suggesting the excitement over exporting US natural gas as LNG could be waning a bit. When US gas production began booming around 2007 and prices cratered – falling to as low as $2 per MMBtu – exporting gas to the higher value Asian market looked extremely attractive.

Japan had shut it nuclear plants which sharply drove up gas demand and local prices. LNG prices in Asia are linked to oil and oil product prices that shot up to record levels, ultimately hitting $140 per barrel in 2008. Fast forward and today oil prices are considerably lower, possibly testing the $90/bbl threshold over the near term.

Read more about the economics of exporting US gas to Asia here.

These factors along with a recent drop in Asian gas demand appear to have spooked some of the companies that signed sales and purchase agreements for US LNG supply that is still under construction.

“Most of these Far East players are realizing they cannot handle exposures to the U.S. Henry Hub (gas price) and now want to get rid of supply,” said a trading house source whose company was approached by one of the sellers as reported by Reuters.

Investing the billions of dollars required to build US liquefaction facilities based on the arbitrage opportunity between US HH-priced gas and Asian oil-linked LNG has always been a risky proposition tied to oil and natural gas price volatility across multiple markets. With a wave of incremental LNG production capacity coming on stream over the medium term, the supply/demand picture is somewhat cloudy. US projects are racing to hit the market as soon as possible.

In an increasingly carbon-constrained world, global gas demand is expected to significantly increase over the longer term and US LNG export projects will likely achieve market share and profitability assuming current commodity price dynamics do not entirely disintegrate. The question now appears to be how profitable will they be and how many will ultimately get built.