US LNG cargo cancellations slow for September as market price outlook improves

Houston — At least 26 cargoes scheduled to be loaded at US LNG export terminals in September were said to have been canceled, a drop from July and August amid a forecast for improving netbacks heading into the fall and winter, market sources said.

Around 15 of the September cancellations are tied to terminals operated by Cheniere Energy, the US' biggest LNG exporter, in Louisiana and Texas, the sources said. At least seven cargoes were canceled from Freeport LNG in Texas for September loading, sources said.

Spot North Asian LNG prices increased 2 cents/MMBtu on the day July 21, with September delivery Platts JKM being assessed at $2.483/MMBtu. First-half September was assessed at $2.375/MMBtu and second-half September at $2.591/MMBtu, with the contango widening to 21.6 cents/MMBtu from 17.5 cents/MMBtu on July 20. Sources said it was likely most of the latest cargo cancellations would be for H1 September loading.

Low international prices and demand destruction due to the coronavirus pandemic have been blamed for the US cargo cancellations that began in April and now total at least 157, according to S&P Global Platts calculations, resulting in a sharp drop in utilization at the six major liquefaction terminals on the Gulf and Atlantic coasts. According to Platts calculations, there were about 40 cancellations for August, 45 for July, 44 for June and two for April.

Based on utilization so far in July, the current month's figure could be even higher.

US exporters are largely protected by fixed fees they receive when customers cancel, although cancellations force them to lower production, and if a counterparty were to claim force majeure that could pose a challenge.

Total US feedgas levels hit a 17-month low earlier in July.

Numerous developers of new US liquefaction facilities have delayed final investment decisions until 2021 or stopped providing updated timelines.

At Freeport LNG, there was no observable gas flow to the terminal south of Houston for the 15^th consecutive day on July 21. A Freeport LNG spokeswoman, Heather Browne, declined to comment on terminal utilization or customers' cargoes.

The forward curve suggests LNG trade activity could pick up by late fall-early winter, especially for US deliveries to Europe, as the market contango may provide an opportunity for some loadings to resume. However, the wave of US production will eventually require Asian demand growth to clear, otherwise European gas markets may find themselves inundated with US LNG again this winter, according to S&P Global Platts Analytics.

In the meantime, there could be significant floating storage and slow steaming through the next few months in an effort to exploit the currently steep contango in the forward curves.

Despite the latest cancellations, the market is still seeing offers available for November delivery into Europe, with offers decreasing and narrowing the gap to the bid, according to a London-based trader. However, with September loading volumes either canceled or afloat, the trader said he expected the month will be just as tight as August in terms of cargo availability.

The source said the Mediterranean is the only place those cargoes will go, as incremental demand is expected to arise now and then.

"The biggest question is what is the likelihood of economic activity rebounding and that's closely tied to individual countries recovering from the effects of COVID-19.," said E. Scott Chrisman, a market expert and former global head of LNG marketing for Sempra Energy's LNG unit. "I think it also depends on each of the commercial positions each of the offtakers have, in terms of access to markets and downstream demand."