Page 4 - GLNG Week 16

GLNG COMMENTARY GLNG
Cargo cancellations coming in
Buyers in Asia and Europe are reported to have cancelled around 20 cargoes of LNG that were due to be loaded in the US
PERFORMANCE
WHAT:
Buyers have reportedly cancelled around 20 LNG cargoes that would have been loaded from US terminals.
WHY:
Demand has collapsed as lockdowns related to COVID-19 continue.
WHAT NEXT:
More cargo cancellations are likely, followed by production shut-ins as storage capacity fills up.
REPORTS emerged this week that European and Asian buyers had cancelled the loading of around 20 cargoes from US LNG export termi- nals, scheduled for June. Details are still emerg- ing and exact numbers have not been confirmed, but the move comes as no surprise given the impact of the coronavirus (COVID-19) pan- demic on global demand for both oil and gas.
Citing an anonymous source familiar with the matter, Bloomberg reported on April 21 that Cheniere Energy – the US’ leading LNG importer – was facing the cancellation of up to 10 cargoes that had been scheduled for loading in June.
This was followed by a report from Reuters on April 22, which cited four trade sources as suggesting the number of cancellation requests could be higher. According to one of Reuters’ sources, 10 companies had cancelled a combined 17 cargoes from Cheniere’s two export terminals on the US Gulf Coast, with a further five cancel- lations of cargoes from privately owned Freeport LNG.
Another source confirmed that at least three companies had cancelled cargoes for load- ing from Freeport, in Texas, the news service added. However, Reuters was unable to confirm whether the cargoes from Freeport had been scheduled for loading in May or June.
According to two of Reuters’ sources, the companies that have cancelled LNG cargoes include majors such as Royal Dutch Shell, Total and BP, several European buyers such as Enel and Uniper, and a number of Asian companies.
A different report last week suggested that Indian buyers were trying to defer cargoes, and certain Japanese buyers may opt to do the same.
No surprises
The moves come on top of a handful of cargo cancellations that were announced earlier in the year. Indeed, concerns about global oversupply were already starting to affect trade late last year, with at least one cancellation of a cargo from the US reported in November. Even before COVID- 19 emerged as a significant global threat, there were warnings that the LNG industry could be in for a difficult year. Now, the challenges are greater than ever.
As COVID-19 has spread around the globe, resulting in numerous countries imposing lock- downs of varying severity, demand has taken a severe hit. Analysts have warned of a wave of cargo cancellations, and potentially shut-in production.
That the US appears to be bearing the brunt of cancellations thus far is also not surprising, given the nature of offtake contracts signed by the country’s LNG producers. Under the terms of most US offtake contracts, buyers that cancel cargoes only have to pay the tolling fee, in con- trast with more traditional LNG contracts that typically involve take-or-pay clauses.
LNG producers will not generally comment on commercial arrangements with their cus- tomers. However, Reuters reported Cheniere as noting that its contracts allow for flexibility, including the option not to lift cargoes but still
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w w w . N E W S B A S E . c o m Week 16 24•April•2020