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Analysis: Asian LNG producers delay maintenance, worsening supply glut

Project owners across major Asian LNG facilities have announced plans to defer maintenance schedules due to financial and manpower considerations — a trend that threatens to deepen a supply glut that has pushed spot prices to record lows, according to market participants.

Platts May JKM, the benchmark price for spot LNG in Northeast Asia, has slumped to a brand new low daily since the start of this week as the COVID-19 pandemic weakened global demand and sparked deferments as well as cancellation of long-term contracts.
On Wednesday, Platts had assessed the May JKM at $2.263/MMBtu, another brand new low since the benchmark was first assessed on February 2, 2009. The May JKM has fallen 19.1% since last Friday’s assessment of $2.797/MMBtu, and 13.7% to-date this week.

Producers defer maintenance plans to later this year or 2021
Recently, projects like Australia Pacific LNG, Brunei LNG, Gorgon, QatarGas and North West Shelf, have reportedly deferred maintenance plans, industry sources told S&P Global Platts.

These sources had mentioned several concerns, which producers may have considered when deciding to defer maintenance, and one in particular was that of reducing capital expenditure as producers face financial difficulties amid the ongoing COVID-19 pandemic and crashing oil and gas prices.

Australia’s Woodside, for instance, has said it aims to cut total expenditure in 2020 by approximately 50% to $2.4 billion and cancel, or defer non-essential activity, including deferring maintenance. This includes an approximately $100 million reduction in operating expenditure and an approximately 60% cut in investment expenditure to $1.7 billion-$1.9 billion.

Manpower issues, in light of country lockdowns and travel restrictions to curb the spread of the pandemic, could have been another key reason for the deferment of maintenance, as companies grapple with mobilizing personnel on site, as well as transporting them in from other locations, market sources said.

Several industry participants said that the decision to delay maintenance could have also stemmed from producers’ projection of a further downside to oil prices in the near future.

“Don’t think it’s really due to the virus, oil-linked term contracts haven’t fully priced in the recent crash in oil prices, so it’s still economical for them to continue producing and sending these volumes,” a Chinese end-user said.

Front month ICE Brent crude futures has fallen 51.8% since the start of March to $24.88/b at the Asian close on Wednesday.

Supply glut worsens with more cancellations, cargo deferments, maintenance delays
With widespread term contract cancellations and cargo deferments, postponed maintenance could exert even more supply pressure on the spot market.

“The price fall this time is a lot worse as many more companies are declaring force majeure or cancelling cargoes [compared with previously]. The bottom this time could be a lot lower and last longer,” a Northeast Asian end-user said.

Last week, Indian state-owned entities like Gujarat State Petroleum Corp and GAIL (India) Limited issued force majeure notices to their suppliers for March-April delivery cargoes to Dahej, Mundra and Dabhol LNG terminals

The turnaround at APLNG’s Train 1, originally slated for May 8 to June 7, had been postponed to May 19-27, effectively shortening the outage by three weeks, according to the Australian Energy Market Operator.

Last Friday, Woodside had also announced that the major turnaround for LNG Train 3 at Karratha Gas Plant, originally scheduled to start in late April, was deferred to September 2020, while maintenance at LNG Train 4 was deferred to August 2021.

A planned maintenance at the Gorgon LNG facility to start from May 23 to July 11, was also heard to have been postponed to a later date, market sources said.

Details of maintenance at other projects — Brunei LNG and QatarGas — was not available, however, it is understood that initial plans for maintenance in May or June at QatarGas’ LNG facilities is postponed to next year.

Both Brunei LNG and QatarGas have yet to respond to Platts’ queries on the matter.

Sentiment takes a hit
At the same time, these delays, cancellations and deferments have contributed to the weakening sentiments in the spot LNG market as these moves would inject even more availabilities into the already heavily oversupplied market.

Among others, Brunei LNG had reportedly closed a couple of tenders early this week due to a Japanese end-user exercising DQT, or downward quality tolerance, as well as deferred maintenance at its facility.

The entity closed a tender late Monday for May 1-4 delivery to JKTC, or Japan, Korea, Taiwan, China, with an approximate cargo size of 3.3 TBtu, and another on Tuesday for May 11-13 delivery to JKTC, Singapore and Malaysia on a DES basis with a cargo size of 3.13 TBtu. The first tender was reportedly awarded at $2.35/MMBtu to Vitol, while the second was heard awarded at $2.10-$2.15/MMBtu on Tuesday.
Source: Platts

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