US LNG feedgas rebounds amid dim prospects for larger gains before September

New York — US LNG feedgas demand is rebounding from a 14-month low in late June. While additional cargo cancellations already announced for July and August are likely to keep the pressure on feedgas demand this summer, stronger autumn JKM prices by September-October could fuel a rapid recovery in exports by later this year.

Over the past week, gas deliveries to US LNG terminals have averaged nearly 4.6 Bcf/d, up from sustained lows around 3.7 Bcf/d in mid-June, data compiled by S&P Global Platts Analytics shows.

The recent uptick in liquefaction activity has been led by Cheniere Energy's Sabine Pass terminal where volumes have climbed about 400 MMcf/d over the past week. At the nearby Cameron LNG, volumes are up about 170 MMcf/d compared to the week prior. In Texas, Freeport LNG and Cheniere's Corpus Christi terminal have registered gains of about 100 MMcf/d and 80 MMcf/d, respectively.

Feedgas demand at Kinder Morgan's Elba Island and at Dominion's Cove Point terminal is roughly steady over the past week, with utilization rates at the latter facility hovering at or above 90% this year to date.

Over the next two months, previously announced LNG export cargo cancellations are likely to keep pressure on US feedgas demand – particularly at Cheniere's Louisiana and Texas terminals. In July and August, the number of cancelled cargoes is likely to total 80, according to market sources.

Since April, when the market impact of the coronavirus pandemic began to take shape, about 130 US cargo cancellations have been announced, according to a tally by S&P Global Platts.

Autumn price spreads

The relatively bearish outlook for US LNG exports this summer could shift dramatically by autumn.

JKM forward swaps markets are currently priced at $2.50/MMBtu for September, at $2.90/MMBtu for October and at $3.60/MMBtu for November, amid a forecast tightening in global cargo supply and an anticipated uptick in Northeast Asia demand.

Over the same three-month period, futures markets are pricing in continued weakness for US Henry Hub gas with September, October and November futures settling June 29 at $1.75 and $1.86 and $2.26/MMBtu, preliminary settlement data from CME Group showed.

Including spot-charter freight cost from the US Gulf Coast to Northeast Asia, currently assessed at 73 cents/MMBtu, a contracted offtaker could potentially deliver into the JKM market at breakeven by September with wider margins for profit during the fourth quarter. With liquefaction fees already a sunk cost for offtakers, it's unlikely those charges would be included in any export calculation.

Feedgas outlook

According to Platts Analytics, US LNG feedgas demand is likely to remain depressed this summer, averaging somewhere in the 5 Bcf/d area. By September, current forecasts show demand rising steeply to over 7 Bcf/d, with the potential for new daily export demand records during the fourth quarter.

Recent and growing bearishness in US forward gas markets could also provide an additional boost to US export prospects. On June 25, fourth-quarter Henry Hub forwards tumbled to an average $2.18/MMBtu – their lowest since the first week of March, S&P Global Platts most recently published M2MS data shows.