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August cargo cancellations at US LNG terminals push summer total over 100

More than 40 LNG cargoes scheduled to be loaded in August at US export terminals were said to have been canceled by customers — similar to what was reported for July, market sources said.

About two dozen of the canceled US cargo loadings for August are tied to Cheniere’s Sabine Pass terminal in Louisiana and Corpus Christi terminal in Texas, market sources said.

The total suggests weak demand will persist through late summer, even with signs of improving economics, although activity could pick up in the fall depending on the trajectory of the coronavirus pandemic.

Since April, when the market impact from the virus began to take shape, about 130 cargoes have been canceled for loading in the US, according to an S&P Global Platts tally based on information from market sources.

Spain’s Naturgy, France’s Total, and Japan’s JERA were among offtakers said to have canceled cargoes for loading at US terminals in August. All have either canceled US cargoes for months during the summer or, in Total’s case, said it planned to do so.

The US exporters are largely protected by fixed fees they receive when customers cancel, although cancellations force them to lower production. Utilization at the six major US liquefaction terminals was at about 40% June 22, based on feedgas deliveries, Platts Analytics data showed.

Fewer loadings at US LNG terminals translate to less gas needed to be delivered to those terminals. That impact can trickle down to interstate pipeline operators, US shale gas drillers, and tanker owners.

“The market is choppy, inquiries for a ship here or there, but then the charterer can’t secure the cargo or find a buyer, so the deal stops,” said a senior official at a foreign tanker owner that regularly loads on the US Gulf Coast.

Cheniere wouldn’t comment on the number of cancellations for August. In an emailed statement, it cited the flexibility in its contracts that allows its customers to manage their portfolios while “providing Cheniere with reliable cash flow.” 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.

At Freeport LNG, utilization has been sharply down from capacity for several weeks. A spokeswoman did not respond to a request for comment on market reports about August cancellations.

LNG prices in the US’s two major export markets, Asia and Europe, remain tepid.

Prices in Asia continue to trend slightly above the record lows seen at the end of April, with the Platts JKM last assessed at $2.15/MMBtu. Prices in Europe, meanwhile, have shown some recovery, especially in Southwest Europe, with the Platts Mediterranean marker assessed at $2.055/MMBtu June 22.

The value of a US Gulf Coast loading spot cargo has therefore also seen some recovery over the past month, with the Platts Gulf Coast Marker rising to $1.575/MMBtu June 22 from $1.125/MMBtu May 22.

This, coupled with falling NYMEX Henry Hub front-month prices, has helped to reduce the difference between the cost of feedgas faced by offtakers and the market value of a spot cargo.

Cargo economics

The GCM-HH spread has been negative since the end of March and has reached differentials as wide as minus 70 cents/MMBtu, implying very negative export economics.

But recently, this spread has fallen to as low as just 1 cent/MMBtu June 18, signaling there could be some recovery for US exports on the horizon.

Prior to the deadline for offtakers to notify US liquefaction terminals about August cancellations, it was thought that the total number could be lower than for July loading volumes, given improved netbacks compared with this time in May.

Sources said it is likely that, given how many portfolio parties have shipping costs sunk into their portfolio, that any volume produced this summer out of the US will be bound for Asia, although depending on slot availability, some might choose to float volume down the Dutch TTF curve into Europe.
Source: Platts

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