Weak market fundamentals overseas not curbing US LNG export enthusiasm

Houston — Utilization at US liquefaction facilities continued its tear Monday, despite record low prices in the Asian end-user market, fears of trade flow disruption from the coronavirus outbreak and tepid demand due to mild weather.

The reason?

The forward curve continues to show positive netbacks because of cheaper feedgas and falling shipping costs, according to S&P Global Platts Analytics data. While the current market fundamentals would typically incentivize US operators to schedule planned turnarounds, there is no indication that is happening in the near-term. The biggest US LNG exporter said last week it expected a lighter load of maintenance at its Louisiana terminal this year compared with 2019.

Gas deliveries to the six major US liquefaction facilities totaled approximately 9.3 Bcf/d on Monday, near a record level, Platts Analytics data show.

The robust activity kept up even as North Asian spot LNG prices plunged to a historic low Monday, on a weaker demand outlook from China and softer European gas prices. Unusually warm weather in Japan, coupled with the likelihood of extended Lunar New Year holidays in China, also have weighed on an already sluggish market. The Platts JKM for March was assessed down 21.3 cents/MMBtu at $3.512/MMBtu Monday, the lowest since Platts started assessing JKM prices since February 2009.

US Gulf Coast LNG netbacks from the JKM fell below $0/MMBtu on Monday, in line with a sharp day-on-day decline of JKM for March deliveries.

Benchmark prices in both Asia and Western Europe are now clearly signaling oversupply, though spreads into Southern Europe and Central Europe still remain marginally profitable. However, given the recent downward shift in the outlook for vessel costs, combined with very bearish price movement at the US Henry Hub, the forward netback remains positive, averaging roughly 25 cents/MMBtu from the Dutch Title Transfer hub, or TTF, and 33 cents/MMBtu from the JKM through the balance of 2020, Platts Analytics data show.

Though weak, these marginal spreads could still incentivize strong utilizations of US LNG export capacity, particularly if US LNG offtakers have hedged their cargo loadings in either the financial markets or though physical tenders.

Travel restrictions due to the coronavirus outbreak have impacted staff for US LNG export developers with offices in China, and it will be a while longer as result before they will be able to see if any commercial momentum toward new long-term offtake agreements comes from recent phase 1 trade deal between the two countries.

"It's going to slow things down in the short-term. I don't think it slows anything down in the long-term," Tellurian co-founder Charif Souki said last week.

Cheniere Energy has a 1.2 million mt/year supply contract with PetroChina. Cargoes were already being diverted before the outbreak as a result of Chinese tariffs on imports of US LNG that continue despite the initial trade agreement. Cheniere, Tellurian and other US developers are courting Chinese buyers for offtake deals to support construction of expansion and new liquefaction projects.