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Forward markets point to potential fall US LNG output rebound from current lows

Highlights

Cargo cancellations have been fueled by weak prices

Contango in curve suggests better economics on horizon

Houston — Forecasts for healthier netbacks could spur a rebound in US LNG export activity in the fall, following a sustained period of significantly reduced terminal utilization driven by cargo cancellations due to weak prices in end-user markets, according to S&P Global Platts Analytics data.

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Some 3.3 Bcf/d of feedgas flowed to the six major liquefaction terminals on July 13, up moderately from levels last week that were the lowest in 17 months.

The biggest contributors to the recent feedgas declines have been Cheniere Energy's facilities at Sabine Pass in Louisiana and Corpus Christi in Texas, and also Freeport LNG in Texas, where gas deliveries were observed to be zero for the seventh consecutive day. A spokeswoman for the facility south of Houston, Heather Browne, declined to comment.

The feedgas trend since the beginning of the month suggests that upwards of 57 cargoes may have been cancelled across July from US facilities, higher than originally anticipated. At least 40 cargoes have been said to have been cancelled for August. September figures will begin to trickle out around July 20.

Bullish structure in global gas and LNG derivatives markets versus the US Henry Hub suggest that spreads should improve over the coming months and allow for greater dispatch of US LNG.

At the close of trading July 10, the outright spread between the Henry Hub and the Dutch Title Transfer Index in Western Europe stood at 87 cents/MMBtu for an October delivered LNG cargo. Given the current variable cost of production and shipping stands at around 70 cents/MMBtu, this market contango could incentivize a number of US LNG cargoes back onto the water this fall.

The Platts JKM to Henry Hub spread is even stronger, opening up to $1.34/MMBtu by October. And despite a higher shipping cost, this could incentivize additional spot trade outside of the Atlantic Basin, particularly for those exporters with idled shipping capacity on hand, Platts Analytics data show. There could be significant floating storage and slow steaming through this period exploiting the currently steep contango in the forward curves.

Platts Analytics forecasts JKM flat for August and September at $2.08/MMBtu as supply turn downs continue to keep Asia balanced. Assuming normal weather, winter should see a recovery in prices. Platts Analytics is bullish to market for the season with a Q1 2021 price forecast at $5.99/MMBtu supported by a tighter freight market.

Some US LNG terminals are seeing better recent utilization than others when compared with their capacity.

Sempra Energy's Cameron LNG in Louisiana and Dominion Energy's Cove Point facility in Maryland were seeing relatively robust feedgas deliveries July 13. At Kinder Morgan's Elba Liquefaction in Georgia – the smallest of the major US terminals – the operator was seeking Federal Energy Regulatory Commission permission to bring Train 8 into service. Elba continues to expect to place the remaining units of the 10-train facility in service before the end of the summer, spokeswoman Katherine Hill said.