Vitol CEO questions economics of US LNG exports amid price slump

London — The head of global trader Vitol said Wednesday that global gas and LNG prices were approaching a level that could call into question the economics of US LNG exports.

Russell Hardy told the IP Week conference in London that current market conditions suggested global producers may have to curtail supplies.

"The market's got this feeling that we're not going to make it through 2020 with current supplies, and someone has to cut back," Hardy said.

The global LNG market is currently seen by many as oversupplied, with increased supply from new projects from Australia and the US more than offsetting demand growth, which has been hit by a mild winter and -- more recently -- the coronavirus outbreak.

The JKM Asian spot LNG price fell to its lowest since S&P Global Platts began assessments in 2009 of $2.71/MMBtu in mid-February.

"We're getting close to levels when it doesn't actually make sense to bring US LNG into the market place because everybody is operating on pipeline gas," Hardy said.

Canceled cargoes

Hardy's comments come as a number of US LNG cargoes have been canceled due to market conditions.

The head of US LNG exporter Cheniere Energy, Jack Fusco, said Tuesday customers had canceled lifting two LNG cargoes from Cheniere's export terminals in the US, which were to be loaded during April, amid short-term market weakness.

Shell, in its 2020 LNG outlook, also warned of potential supply curtailments, given the coronavirus outbreak and reduced demand in China, which began declaring force majeure on LNG cargoes in February.

Executive Vice-President of Shell Energy, Steve Hill, said there was the possibility of reduced supply "due to shut-ins or turndowns in some countries."

S&P Global Analytics in a report Tuesday also warned that the spread of coronavirus to South Korea -- one of the world's biggest LNG importers -- could cut demand there, with a potential knock-on effect on US LNG.

"South Korea is the largest buyer of US LNG. While it's unclear if South Korea will go to the same extremes as China, demand will almost certainly be impacted and, in this case, US LNG is acutely more at risk," it said.

Asian demand

Vitol's Hardy said Wednesday that low LNG prices now would be good for demand over the next few years, "hopefully in Asia."

"We expect demand to come back over the next 12-24 months," Hardy said.

"As that comes back, it only needs to be slightly short of supplies so the European and Asian markets will be at a significant premium to the US. You could see a scenario is a couple of years that the Asian market is at $6[/MMBtu] and the US is still $2[/MMBtu]. So that could detach," he said.

Shell in its outlook said it expected the global LNG market to be well supplied to at least 2025, with the market returning to balance only as new LNG projects currently under development complete.

Shell said the industry had sanctioned enough projects to meet demand to 2025, with the planned expansion of Qatar's LNG export capacity to 126 million mt a year from 77 million mt now also expected to add to the burgeoning supply.