LNG exports reached a peak in October 2019
From an Article by Nick Cunningham, OilPrice.com, February 5, 2020
China’s state-owned gas importers are considering declaring force majeure on LNG imports, which would amplify the turmoil in global gas markets.
LNG prices have already plunged to their lowest levels in a decade in Asia as the ramp up of supply in 2019 came at a time when demand has slowed. That was true before the outbreak of the coronavirus. But the quarantine of around 50 million people and the shutdown of huge swathes of the Chinese economy has sent shockwaves through commodity markets.
Shipments of oil and gas are backing up at Chinese ports, which is creating ripple effects across the world. Now, Chinese state-owned CNOOC is considering declaring force majeure on its LNG import commitments, according to the FT. Sinopec and CNPC are also apparently considering the move.
Prices were already in the dumps. JKM prices recently fell to 10-year lows. But they have continued to decline, approaching $3/MMBtu for the first time in history. Just a few weeks ago, JKM prices were trading at around $5/MMBtu, itself an incredibly low price for this time of year.
LNG exports from the U.S. are uneconomical at these price levels. Many exporters have contracts at fixed, higher prices. But shipments can be cancelled for a fee. And any spot trade would be hit hard. The question now is whether shipments will come to halt.
“Forward prices for summer are now at levels where U.S. LNG shut-ins begin to seem viable,” Edmund Siau, a Singapore-based analyst with energy consultant FGE, told Bloomberg. “There is usually a lead time before a cargo can be canceled, and we expect actual supply curtailments to start happening in summer.”
But if buyers start cancelling their purchases, LNG exporters have to ramp down production. That could then ripple back to the shale gas fields in the U.S., where prices are already below $2/MMBtu and drillers can’t make any money. The CEO of Marcellus shale gas giant EQT said in December that “a lot of this development doesn’t work as well at $2.50 gas.” Henry Hub prices are now below $1.85/MMBtu.
There is little relief in sight. “Even with our projected increase in power sector natural gas demand due to the current low price environment, we estimate natural gas stocks to end this summer with 3.85 tcf in the ground,” Bank of America Merrill Lynch said in a recent note. “Such inventory level would be more than 100 bcf higher YoY, and does not leave much room for bearish errors from mild weather, high renewable generation, or reduced LNG exports.”
Europe too is sitting on abnormally high inventories. “LNG exporters desperately need cold weather in Europe to draw down inventories and provide more breathing room this summer,” Bank of America warned.
But that is not happening. Europe just saw its warmest January on record, depressing gas demand. Fossil fuels are driving climate change, so it’s rather ironic that higher temperatures are now battering gas markets.
It’s all combining to create a “gasmaggedon,” according to Bank of America Merrill Lynch. “We are now more than halfway through the winter, and thus far Mother Nature has not been kind to natural gas prices,” analysts at the bank wrote.
The investment bank calls the U.S. Midwest power sector is the “true market of last resort,” which means that U.S. gas prices have to fall to such low depths that coal-fired power plants are forced offline in their last redoubt – the Midwest.
“We believe the US cannot sustain reduced LNG exports this summer,” Bank of America warned. “Therefore, US natural gas prices might have to go low enough to stimulate sufficient Midwest power sector natural gas demand to balance the entire global gas market.”
>>>>>>>>>>>>>>>>>>>>>>>>
See also: LNG’s Wintry Price Plunge Boosts Possibility of U.S. Terminal Shut-Ins Later in Year | 2020-01-28 | Natural Gas Intelligence
Energy Aspects gas analyst James Waddell, who is based in London, said shut-ins aren’t likely anytime soon. He noted that U.S. offtakers have hedged their volumes against other delivery points overseas that for now would make it uneconomic to not lift a cargo.
However, contracts don’t necessarily force buyers to take cargoes in all instances or preclude parties from coming up with alternate solutions if it makes little sense to take a shipment. Instead, a variety of things, including contractual terms, vessel availability, scheduling restrictions along the Gulf Coast, and the supply and demand balance are sure to factor into the possibility of shut-ins.
If they do happen, shut-ins are more likely to occur later in the year, and would largely hinge on Europe’s ability to inject gas and store LNG supplies during the summer months. LNG inventories are currently at about 60% of tank capacity, or above where they typically are during winter, while the continent’s gas in underground storage is also above average at 72%.
There are a lot of variables in play still, but the trajectory that we’re on right now, given where prices are, would tend toward too much gas in storage in the third quarter to inject at healthy rates. If that’s the situation we’re in, that’s when the U.S. is probably at its most susceptible to shut-in. QED.
Point Your RSS Reader to FrackCheckWV.net/feed/
{ 2 comments… read them below or add one }
Natural Gas Prices in a Hole During February Bidweek as Winter Ends Before It Begins
Jeremiah Shelor, Natural Gas Intelligence, February 3, 2020
Over the weekend, the celebrated groundhog Punxsutawney Phil foreshadowed an early spring, but natural gas traders have spent the past month wondering when winter will start, much less when it will end.
To describe January heating demand as underwhelming would qualify as an understatement, and any lingering winter risk premiums seemed to evaporate with the morning dew in February bidweek trading; deep discounts from coast to coast dropped NGI’s February Bidweek National Avg. 75.5 cents to $1.810/MMBtu.
If peak-winter prices shy of $2 seem low, that’s because they are, according to historical comparisons. The February 2020 average is down $1.425 from February 2019’s average of $3.235, which was itself down 99.5 cents from the $4.230 February 2018 bidweek average.
The near-complete absence of January cold — especially for key demand markets in the Midwest and East — sent natural gas futures plunging below the psychologically and technically significant $2 level.
The February Nymex contract rolled off the board at $1.877 last week; the 28.5-cent month/month decline at benchmark Henry Hub established a bearish baseline that saw fixed-plus-basis averages drop at least a quarter at nearly every trading location in NGI’s bidweek reporting.
The Northeast posted the largest discounts during February bidweek. New England hubs hardly showed any of their characteristic winter volatility in spot trading during the month of January, and February fixed-plus-basis averages plummeted accordingly.
Algonquin Citygate tumbled $3.315 month/month to average $3.135, while Iroquois Zone 2 shed $3.265 to $3.205.
Midwest hubs saw less pronounced but still hefty discounts. Chicago Citygate dropped 40.0 cents to average just $1.895.
The lack of premiums farther downstream unsurprisingly meant discounts for Appalachia as well. Columbia Gas fell 28.5 cents to $1.530, while Texas Eastern M-3, Delivery dropped $1.145 to $2.195.
With the market entering the first trading week of February, the path forward for natural gas prices remains clouded in uncertainty. Forecasts heading into Monday’s trading suggested bulls could only hope for near-normal temperatures at best through mid-February
Coronavirus and the Global LNG Glut – The Fuse
From an Article by Nick Cunningham, The Fuse, February 10, 2020
LNG market down in mainland China
In 2019, a wave of new LNG export terminals came online, adding a large dose of fresh supply that dragged down prices. In a broad sense, global demand is still on the rise, particularly in China, but even before the coronavirus analysts had predicted that the world would need several years to digest the supply increase from last year.
But the outbreak of the coronavirus and Beijing’s efforts to stop the spread of infections resulted in tens of millions of people quarantined. The government idled factories, as did multinational companies operating in the country. Thousands of flights have been cancelled.
Needless to say, bringing much of the world’s second largest economy to a partial halt has global ramifications. But disruptions to global supply chains happen very quickly. China’s CNOOC declared force majeure on LNG purchases in an effort to slow imports. Shell and Total rejected those declarations, setting the stage for legal battles. “As many as 35 February cargoes could be subject to force majeure declarations with at least five already diverted as of Feb. 7,” ship broker Poten & Partner estimated in a report, according to S&P Global Platts.
Prices for LNG in Asia—the so-called Platts JKM marker—fell below $3/MMBtu in recent days, a historic low. The steep drop in Chinese demand has dragged down an already oversupplied market.
http://energyfuse.org/coronavirus-and-the-global-lng-glut/