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Fewer cargo cancellations for October to aid continuing US LNG output recovery

Highlights

Improved prices and netbacks boost export economics

Summer market weakness partly tied to coronavirus

Houston — Up to 10 cargoes scheduled for loading in October at US liquefaction terminals were said to have been canceled, the fewest since May as improving prices in key end-user markets boost netbacks, according to market sources.

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The majority of the cancellations -- about seven -- were said to be tied to the two terminals operated by Cheniere Energy, the biggest US LNG exporter, market sources said. A Cheniere spokesman declined to comment.

US Gulf Coast LNG netbacks from Northeast Asia rallied recently, led by a bullish surge on the Platts JKM September assessment driven by reports of an outage at the Gorgon LNG facility in Australia.

That sentiment weakened slightly Aug. 21 as North Asian LNG spot prices dipped below the $4/MMBtu mark, as an announcement about a staggered shutdown plan relieved supply pressure that would have tightened spot availability if all three trains were to be shut for inspection and repair simultaneously.

Amid the market dynamics, gas deliveries to major US liquefaction facilities rose above 5 Bcf/d for the first time since early June, S&P Global Platts Analytics data showed.

Market participants remain of the opinion that volume will still mainly be marketed to Asia, given the better netbacks, even as the updated news from Gorgon could eat into margins to Asia.

Those customers that did cancel US volumes for October likely did so due to logistical constraints, according to a London-based trader. The source reported November Northwest Europe delivery bids at Dutch TTF minus 30 cents/MMBtu, with offers flat to TTF.

The wide bid/offer spread with a lack of trades reported for this period is likely to be due to sellers being not too interested in trading into Europe and instead focusing on Asia, the trader said.

An Atlantic-based trader valued H1 October US Gulf load cargoes at around $3.15/MMBtu.

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 as many as 167, according to Platts calculations. There were about 26 cancellations for September, 40 for August, 45 for July, 44 for June and two for April.

Even with the recent uptick in US terminal utilization, total feedgas flows to the six major LNG facilities are still down almost 50% from the record high set in March, Platts Analytics data showed.

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.