Page 11 - NorthAmOil Week 25

NorthAmOil COMMENTARY NorthAmOil

US LNG producers seek

customers as exports fall

US LNG producers are trying to attract new buyers as

cancellations of some contracted cargoes kick in

GLOBAL US LNG producers are seeking to attract new sources – in recent years owing to the continent’s
buyers as cancellations of cargoes scheduled efforts to reduce its dependence on Russian
WHAT: for loading from their terminals this summer gas, and to new regasification capacity coming
US LNG exporters are come into effect. And despite low demand, they online. However, with European storage filling
exploring various options may benefit from countries that are diversifying up, in the short term sellers have to find other
to woo new buyers. their sources of supply – which many countries homes for their cargoes.
around the world are doing. Perhaps surprisingly, the US appears to be a
WHY: beneficiary as China gradually restarts its econ-
Exports of LNG from the Downward trend omy after locking down to prevent the spread
US are falling as cargo The fact that US LNG exports are falling is no of the coronavirus (COVID-19). Tensions
cancellations kick in, and surprise, with numerous reports of cancelled between Beijing and Washington remain – and
customers are needed to cargoes coming over the past few weeks. Offtak- could indeed intensify in the coming months,
justify new liquefaction ers from US LNG terminals typically have to give but China has been buying US LNG cargoes
capacity. 45-60 days’ notice to cancel a contracted cargo, again since April, for the first time in over a year.
and while the LNG operators do not disclose And US LNG exports have been gaining
WHAT NEXT: the names involved, comments to media from market share in China since they resumed.
US companies will be industry sources have shown the number of can- According to consultancy Wood Mackenzie,
banking on buyers that cellations is steadily growing. China received 10 cargoes of US LNG between
are trying to diversify Last week, the Financial Times cited analysts April and May. Trade has been spurred by China
their supply sources. and traders as saying that about 45 cargoes granting tariff waivers to some companies
scheduled for July – or more than 60% of the importing US LNG.
total number of expected shipments from the Under a preliminary deal announced in Jan-
US – had now been cancelled. Meanwhile, fall- uary, China committed to buy at least $52.4bn
ing utilisation rates at US LNG terminals have in additional energy purchases from the US
led to speculation that the number of cancelled over 2020-21, from a baseline of $9.1bn in
cargoes scheduled for loading in June would 2017. However, analysts were warning even
also be higher than the 20-30 that was previ- before China locked down to battle COVID-19
ously anticipated. that this figure was unrealistic. The country’s
Reuters reported on June 18 that the amount of demand slowdown as a result of its lockdown
Perhaps pipeline gas flowing to US LNG terminals aver- appears to have put the target even further out
surprisingly, the aged just 4.0bn cubic feet (113mn cubic metres) of reach. And last month US President Don-
US appears to be per day – a utilisation rate of 41% – so far in June. ald Trump threatened to pull out of the deal if
This marks a decline from utilisation of 6.4 bcf China falls short of its spending commitments
a beneficiary as (181 mcm) per day in May, which was an eight- – which amount to $200bn in total, covering a
month low that followed a record high of 8.7 bcf variety of US goods and services.
China gradually (246 mcm) per day in February. In 2019, utilisa- As a result of these ongoing trade tensions,
tion rates at US LNG terminals were around 90% US LNG producers are not expected to be
restarts its – though more liquefaction capacity has come able to take full advantage of China’s recovery

economy. online at some of these terminals since then. in demand and imports, compelling sellers to
Based on utilisation rates, S&P Global Platts consider other options.
estimated this week that 44 cargoes or more had One increasingly popular destination for US
been cancelled for June loading at US termi- LNG is Turkey, which has been turning to LNG
nals, and warned that cancellations in July and for both cost reasons and political leverage. Tur-
August could be even higher. key tripled its imports of LNG from the US in
March, and it would not be surprising if it con-
Seeking buyers tinues to buy more.
Despite these cancellations and the fact that US In the short term, US producers will also
liquefaction facilities are running below capac- struggle to find buyers because gas prices on
ity – or perhaps because of them – their opera- the Gulf Coast are higher than in Europe and
tors are casting their nets wide in search of new parts of Asia, putting the economic viability of
buyers. Europe has been an increasingly popu- their output into question. But exporters remain
lar destination – for LNG from the US and other hopefully that this trend will not persist.™

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