US LNG cargo cancellations mount for July as weakened global demand persists

US LNG cargo cancellations mount for July as weakened global demand persists| LNG | Natural Gas | 21 May 2020 | 21:47 UTC | Houston

Houston — About 45 LNG cargoes scheduled to be loaded in July at US export terminals were said to have been canceled by customers — at least half of them tied to Cheniere Energy's two Gulf Coast facilities, according to market sources.

The moves reported Thursday reflect the depth of global demand destruction exacerbated by the coronavirus pandemic, with Asian and European buyers fleeing US supplies as summer approaches. Feedgas flows to US liquefaction facilities fell this week to the lowest level since October 2019.

The July cancellations, roughly double what was reported for June, represent nearly two-thirds the average volume of US LNG that was produced monthly when the coronavirus began to spread globally in January, according to S&P Global Platts Analytics data.

Often billed as a big benefit for US exporters, their contracts call for offtakers to pay a fixed feed when canceling cargoes. Those protections could be complicated if customers were to declare force majeure, something market participants have suggested is possible if the health crisis drags on or deepens. Cheniere has said it doesn't believe the market disruptions from the coronavirus would provide a valid legal basis for an FM claim by one of its counterparties.

Low international prices and weaker-than-normal demand have been cited as the main reasons for the cancellations at US terminals that largely began in April and picked up in May and June.

North Asian spot LNG prices extended their downtrend Thursday as cargo availability remained ample despite procurement activity in China gaining momentum. The Platts JKM for July was assessed down by 4.8 cents/MMBtu day on day at $2.125/MMBtu, on lower pricing indications.

In the Atlantic region, a plunging Eurogas market has sent delivered LNG prices to record lows. Platts assessed the DES NWE/MED markets at $1.371/MMBtu Thursday, down $0.134/MMBtu day on day, the lowest level since Platts began assessing these markets in 2010.

The Platts Gulf Coast Marker was assessed at $1.283/MMBtu Thursday, moving lower on bearish sentiment in the Northeast Asian market, which currently provides the most lucrative market for US cargoes. The spread between the GCM and NYMEX Henry Hub front-month has remained in negative territory since late March and implies that the margins on US cargoes being marketed in the spot market are very thin or negative.

As the biggest exporter of LNG and individual physical consumer of natural gas in the US, Cheniere's production is being hit hardest by the cargo cancellations. More than two dozen of the total canceled US cargo loadings for July are tied to Cheniere's Sabine Pass terminal in Louisiana and Corpus Christi terminal in Texas, according to market sources. Royal Dutch Shell, Spain's Naturgy, and commodity trader Trafigura were among the customers that notified Cheniere of cancellations for July for loadings at its facilities, market sources said.

Because of its substantial marketing function, Cheniere could choose to re-market some of the canceled US cargoes on its own or source the relevant LNG for its customers from other terminals around the world.

Cheniere declined to comment.

Shell is the sole offtaker at Kinder Morgan's Elba Liquefaction in Georgia, the smallest of the six major US LNG export terminals. A Kinder Morgan spokeswoman said Elba planned to produce LNG in July, although she would not comment on whether there were any cancellations there.

Elsewhere, amid lower demand and high inventories, Japanese buyers Osaka Gas and JERA canceled a total of three July cargoes from Freeport LNG in Texas, market sources said. Britain's BP and France's Total also have offtake commitments at Freeport LNG.

Total was said to have canceled at least two US LNG cargoes for July, though it was unclear from which terminals. It also has commitments at Cameron LNG in Louisiana and at Cheniere's Sabine Pass.

Representatives of Freeport LNG and Cameron LNG declined to comment on their customers' decisions.


Market sources that spoke to Platts did not report any cancellations for July from Dominion Energy's Cove Point export terminal in Maryland.

One source said this was not unusual as they had heard no cancellations for June loading either out of Cove Point, explaining there had been other mechanisms in place such as a recent tender from India's Gail for a FOB cargo. Unlike the other US liquefaction facilities, feedgas flows to Cove Point have consistently remained near capacity in recent months.

Fewer loadings at US LNG terminals in July will translate to less gas needed to be delivered to those terminals. That impact can trickle down to interstate pipeline operators and to US shale gas drillers. Prices also could face further pressure, according to a trading source.

For tanker operators, some chartered vessels may see slower voyages or canceled voyages this summer, a market source said.

Views: 113

Reply to This

Replies to This Discussion

Analysis: US LNG exports to Europe already crumbling ahead of cancellations

Neil Hunter  Editor Keiron Greenhalgh Commodity LNGNatural GasShipping

Topic;  LNG Commoditization

London — After a dominant display over the last gas winter, US LNG exports to Europe have weakened considerably so far in May, even before widespread cancellations are poised to bite in the coming months, an analysis of S&P Global Platts Analytics data indicates.

Poor economics for US exports of the fuel appear to have already ravaged the viability of shipping to Europe, and as European natural gas hub prices now languish below the key US Henry Hub benchmark and feedstock gas valuations, other Atlantic Basin exporters are now making inroads where appetite still exists in Europe.

Out of the 6.34 million mt of LNG — equivalent to 8.756 billion cu m of gas — exported so far in May to Europe's key trading hubs, namely France, Spain, Italy, Belgium, the United Kingdom and the Netherlands, only 15.6% originated from the US. That share of the pie is a sharp decline from 23.6% in April and a shadow of the US' former position as market leader, which saw it deliver a third of all imports at its peak in November.

This was most notable in a complete absence of exports to the UK, which had been a linchpin of US LNG players' strategy as it quickly rose to market leadership. Both total US exports to Europe and physical UK imports of LNG were the lowest since November in May, the analysis show.

Global LNG players shipping to Europe could still be finding opportunities if their positions are well hedged, according to sources.

Exports are still viable "if they can fully sink the cost of their shipping and the landed LNG price is not heavily negative to hub prices," one LNG market participant said. "Otherwise, it just doesn't make sense."

"Now does not matter if both legs of the trade were hedged then. If they were not, then you could find something going from in-the-money to out-of-the-money by delivery," the source added.

Looking forward, it is understood that 20 LNG cargoes that might otherwise have been shipped from US liquefaction plants have been canceled across the month of June, while this figure is estimated to be between 40 and 50 shipments for the month of July.

In context, the US has delivered 14 cargoes to Europe's trading hubs in May, effectively halving March's total both in absolute and volumetric terms, and rapidly heading back toward late 2018 levels.

Aggregate global exports from the US paint a similar picture. While summer demand levels are undoubtedly a factor, the US nevertheless experienced a sharp decline in exports, shipping 4.812 Bcm of gas equivalent globally so far in May, a decrease of 22% on the month.

The European component of this figure constituted 28% of all US exports, compared with April's 37%, which could possibly indicate a shift in focus to Asia.


Smaller LNG producers are capitalizing on faltering US exports, the analysis suggests, with market sources also reporting that some players may be topping up long-term commitments with spot production.

So far in May, Qatar remains the market leader with 27.7% of European imports sourced from the country, and has been bullish on its future export potential, while Nigeria, in capturing a 13.5% share of European trade, has experienced its best ever month for shipments to the region, likely as a culmination of a new approach.

"Qatari production costs are super cheap and they are not going to be the first ones to shut, hence the ongoing shipping to Europe," the source said.

Adding: "Nigeria is slow steaming tankers to stretch out their obligations but keep production going."

There are also faint signs that Asia may be attracting an increasing number of Qatari cargoes, as the country's 7.471 Bcm of May exports comprised 32% heading to Europe, down from 38% in April.

Trinidad and Tobago, Norway and Angola made up the rest of May's LNG supply mix outside of Europe's Top Five, and have successfully picked up trade in France and the Netherlands, which still have inland storage demand to meet.

Russian LNG from the Yamal Peninsula, one of the Top Five exporters, also targeted these destinations in May, sending over half of its shipments to active import terminals.

Yamal sent its first summer cargo to Asia during May, although Platts Analytics data also indicates that as many as five Yamal shipments could land in Europe before May delivery ends; complementing what it has already delivered, and showing a preference for the shorter route for now.

The analysis also shows how Spain has become the US' key target market, receiving half of the US' shipments to Europe, and plugging a gap vacated by Russia and Qatar, with the latter of these primarily focusing on exports to the UK amid weak demand in Asia.


© 2020   Created by Keith Mauck (Site Publisher).   Powered by

Badges  |  Report an Issue  |  Terms of Service