Page 6 - NorthAmOil Week 18

NorthAmOil COMMENTARY NorthAmOil
Hopes for resilience of LNG demand
The COVID-19 pandemic is hitting many industries, including LNG, but there are hopes that demand for the fuel will stay resilient despite being dented in the short term
GLOBAL
WHAT:
There is cautious optimism over the resilience of LNG demand despite the impact of COVID-19.
WHY:
Pipeline gas, rather than LNG, is likely to feel the brunt of the fall in demand this year.
WHAT NEXT:
LNG demand could still rise this year, but by less than previously expected.
LNG – like many other industries – is feeling the effects of measures put in place globally to contain the coronavirus (COVID-19) pandemic. Demand forecasts for the super-chilled fuel are being revised downwards, alongside demand for natural gas more broadly. However, as more countries prepare for a gradual easing of lock- down measures, cautious optimism is emerg- ing over the resilience of LNG demand in the medium term and beyond.
Calm before the storm
Thus far, indications appear to be that LNG trade was still on an upward trend in recent weeks. This is unsurprising, however, given the pace with which the LNG industry can respond to supply and demand shocks, as well as the lag in reporting figures. First-quarter results and fig- ures for March are emerging, but it was only in mid-March that a global response to COVID-19 emerged, and while the spot market may already be taking a hit, contracted cargo deliveries have continued as before.
And even as numerous countries were pre- paring to impose lockdowns to combat the outbreak, LNG trade was up on a year-on-year basis, illustrating how the industry has boomed recently. For example, new data published this week showed that India’s imports of LNG in March were up 20.4% y/y at 2.87bn cubic metres.
Meanwhile, Royal Dutch Shell reported in its first-quarter results that its LNG sales in the quarter reached 19mn tonnes, up from 17.5mn tonnes a year ago. The super-major’s liquefac- tion volumes rose to 8.9mn tonnes in the first
quarter of 2020, compared with 8.7mn tonnes in the same quarter of last year.
However, both Shell’s liquefaction volumes and sales were down slightly on the fourth quar- ter of 2019. This sequential downward trend is now anticipated to continue, and indeed Shell warned that it may need to curtail liquefaction – among other operations – in the second quarter if market conditions require it.
More broadly, it is becoming clear that LNG producers will be increasingly vulnerable to cargo cancellations in the shorter term. Buyers are typically required to give a certain amount of notice in order to cancel contracted cargoes – for example leading US LNG exporter Cheniere Energy generally requires 45-60 days’ notice.
Two weeks ago, media reported that up to 20 LNG cargoes that were due to be loaded at US terminals in June may have been cancelled. Last week, Argus Media reported that this number may now be closer to 25.
As exporters brace themselves for more can- cellations, however, a cautiously optimistic note is now being sounded over LNG’s resilience and, ultimately, its recovery.
Resilience
Consultancy IHS Markit is among those expecting the global LNG industry to show “impressive resilience” following its latest assessment of global markets for the fuel. The consultancy has downgraded its estimate for total LNG demand in 2020 by 14.4mn tonnes – or 3.8% compared to its expectations before COVID-19 took hold.
Shell has reported increased LNG sales y/y in the first quarter but has warned that it may need to curtail liquefaction if market conditions require it.
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Week 18 07•May•2020