Page 7 - NorthAmOil Week 06

NorthAmOil COMMENTARY NorthAmOil
CNOOC’s efforts suggest that suppliers are likely to contest any other force majeure declaration.
Meanwhile, an LNG tanker en route to China from Indonesia has been diverted, according to data intelligence firm Kpler and two Reu- ters sources. A Kpler market analyst, Nathalie Leconte, told the news service the tanker had been diverted towards the South China Sea on January 30 and was now between Vietnam and Borneo. Its new destination has not been confirmed.
Kpler data also showed last week that the Al Kharsaah LNG tanker changed its destination to the Tianjin LNG terminal in northern China on February 2 from the Zhejiang terminal near Shanghai. As the latter area is reported to have the highest number of confirmed cases out- side Hubei, where the coronavirus originated, the move is thought to be in response to the outbreak.
Distant impact
The developments in China have major reper- cussions for the US’ LNG export industry, despite the fact that the trade war between the two countries has led to their LNG trade collaps- ing in the past two years.
China recently pledged to buy an additional $18.5bn in US energy products this year under a preliminary deal, and LNG exporters were hopeful of reaping the benefits, despite the fact that Chinese tariffs of 25% on US LNG have not yet been lifted. The coronavirus outbreak com- plicates the resumption of US-China LNG trade further still.
LNG customers are facing a situation where they may not be able to afford to cover their ship- ping costs as spot prices keep falling to new lows. Late last year, Singaporean gas company Pavil- ion Energy took the unusual step of cancelling the loading of an LNG cargo from the Cameron LNG terminal on the US Gulf Coast. There are now worries that other customers – such as com- modity trading houses – will take similar steps as the cost of shipping their cargoes becomes less
attractive. If this happens, it could lead in turn to LNG export terminals being forced to shut in production as their storage tanks fill up.
“Forward prices for summer are now at levels where US LNG shut-ins begin to seem viable,” an FGE analyst, Edmund Siau, told Bloomberg last week. “There is usually a lead time before a cargo can be cancelled, and we expect actual sup- ply curtailments to start happening in summer.”
These expectations are backed up by the fact that feed gas deliveries to US liquefaction termi- nals reached a new record high of 9.13bn cubic feet (259mn cubic metres) per day on January 28, according to data firm Genscape. The more feed gas deliveries rise, the more acute the oversupply situation is likely to become.
Buyers of US LNG can typically opt out of taking contracted supplies with 30-60 days’ notice. And Bloomberg cited the managing director of Cheniere Energy’s marketing arm in London, Eric Bensaude, as saying that if this were to happen, the company would likely reduce LNG production at its two Gulf Coast terminals. According to Bensaude, any decisions by Cheniere’s buyers to cancel cargoes are likely to be made in March or April, during a period of seasonally lower demand when conditions are generally reassessed. Buyers of LNG from Cheniere – the US’ leading LNG exporter – have to pay a fee to cancel a cargo.
US LNG producers remain optimistic about longer-term demand, but in the short term, market conditions look increasingly more dif- ficult. It is hard to estimate the full extent of the impact the coronavirus epidemic will have on LNG demand, because there is no basis for comparison. The Sars outbreak in 2003, to which the coronavirus epidemic has been compared, occurred at a time when Chinese energy infra- structure was not as developed, and before the country started importing LNG. Demand and imports have since boomed, and the impacts across the global LNG industry illustrate this. Much now depends on how long it takes for the current epidemic to run its course.™
Buyers of US LNG can typically opt out of taking contracted supplies with 30- 60 days’ notice.
There are worries that commodity traders and other buyers could cancel the loading of LNG cargoes at US export terminals.
Week 06 12•February•2020 w w w. N E W S B A S E . c o m
P7