Factbox: Pandemic-fueled rout leaves US gas, LNG markets searching for direction

US gas traders are searching for new direction this week as prices for onshore hubs and international destinations continue to hover just above record lows.

At the benchmark Henry Hub, mild weather and emerging coronavirus pandemic-related demand destruction are keeping prices in the mid-$1/MMBtu range, up from a record low at $1.45/MMBtu in early April. High storage levels and midstream constraints are pushing regional benchmarks lower still, with Appalachia's Dominion South averaging $1.33/MMBtu and the Permian Basin's Waha Hub 12 cents/MMBtu, month to date.

On the global market, weaker demand in Northeast Asia and a virus-related lockdown in India are raising renewed doubts over potential cargo deferments and the region's capacity to absorb US supply. On Wednesday, the JKM prompt-month LNG import price in Northeast Asia fell to just $2.29/MMBtu, now hovering just pennies above a prior record low seen in early April.

"Relevant forward curves now indicate that US Gulf Coast LNG netbacks will persist largely negative through the remainder of the year, which could hinder exports from spot-exposed off-takers later this summer," said Ross Wyeno, S&P Global Platts Analytics team lead, North America LNG.

PRICES

**JKM prompt-month LNG import prices to Northeast Asia edged back toward a prior record low seen earlier this month, settling Wednesday at $2.29/MMBtu.

**Export prices for LNG shipped FOB from the US Gulf Coast were assessed 5 cents lower Wednesday at $1.50/MMBtu; the index remains 20 cents above its record low in late March.

**The NYMEX Henry Hub prompt-month settled at $1.60/MMBtu Wednesday, down 12% or more than 20 cents over the past week, pressured by lower shoulder-season demand.

**Balance 2020 forwards prices at the Henry Hub settled Tuesday at $2.08/MMBtu, down from a four-week high at $2.14/MMBtu earlier this month.

**Cash Henry Hub fell 7 cents Wednesday to $1.63/MMBtu; the index is down nearly 20 cents from a 21-day high last week but remains above its 21-year low at $1.45/MMBtu in early April.

**Summer-to-winter Henry Hub gas spreads have doubled in recent weeks due to lower near-term demand and expected lower associated gas output.

**Cash prices at the Permian Basin's Waha Hub traded around 29 cents/MMBtu Wednesday, pressured by persistent midstream constraints and weaker shoulder-season demand.

**Waha forwards prices continue to test new 7-month highs this week, with the January-2021 contract settling Tuesday at $2.22/MMBtu amid forecasts for lower associated gas production.

**Dominion South cash prices are hovering in the low $1.40s/MMBtu at mid-week, well above recent lows near $1/MMBtu; forwards markets are pricing in similar levels through October.

**Recent price shocks are expected to jeopardize future gas and LNG projects and put companies under a significant financial strain, according to Boston Consulting Group.

TRADE FLOWS

LNG

**A cargo loaded at Freeport LNG last month could soon be the first US LNG shipment delivered to China in more than a year, amid tariff waivers.

**Market participants are uncertain about how much volume China can absorb as North Asian spot LNG prices remain low.

**Reports of more cargo deferments and an extension until at least May 3 of the nationwide lockdown in India due to the coronavirus have further dampened bearish sentiment, Platts Analytics data show.

**LNG buyers seen increasingly capitalizing on the market environment to leverage better contract terms, BCG says.

Natural gas

**US gas production, averaging 92.3 Bcf/d in April, is at a monthly record high for 2020; output reached its highest average on record in November at over 93 Bcf/d.

**Gas-fired power burn is averaging nearly 26 Bcf/d in April with lower prices keeping generator demand about 1.4 Bcf/d, or 6.5%, higher compared to year-ago levels.

**Industrial gas demand is averaging 21.1 Bcf/d in April, down 1.8 Bcf/d, or nearly 8%, from year-ago levels amid weaker demand - principally from chemicals facilities and refineries.

**US LNG feedgas demand has remained near record-high levels, averaging 8.6 Bcf/d this month.

**US pipeline exports to Mexico are averaging below 4.8 Bcf/d in April as ongoing maintenance on the NET Mexico Pipeline limits deliveries to end-users south of the border.

**US gas in storage climbed to 2.024 Tcf in the week ending April 3, following a bearish first injection of the season that totaled 38 Bcf - more than six times that of the five-year average.

INFRASTRUCTURE

• **The US oil and gas rig count fell to 641 for the week ended April 9 - its lowest since October 2016 as shale operators continue to dial back exploration, drilling and completion budgets.

  **Permian rig count fell to 334 last week, marking the basin's fewest in over three years.

  **Freeport LNG is unsure when it can advance a proposed fourth train at its Texas export facility, as potential customers focus on virus impacts.

  **LNG Limited suitor withdraws takeover offer, imperiling Magnolia LNG project in Louisiana. The developer will run out of cash in May.

  **DCP Midstream, equity holder in Gulf Coast Express and anchor shipper on Cheyenne Connector, cut its workforce by 15%, citing market downturn.

  **Sempra's Energia Costa Azul LNG project continues to eye final investment decision this quarter. Analysts say the project may be the only new North American LNG export project to advance in 2020.