Page 12 - NorthAmOil Week 21

NorthAmOil COMMENTARY NorthAmOil
not entirely straightforward for Chinese buy- ers wishing to take US cargoes and will put the brakes on efforts to ramp up shipments signifi- cantly. In addition, a number of US LNG devel- opers were counting on Chinese buyers to sign long-term offtake contracts, allowing construc- tion of new liquefaction capacity to go ahead. If all that is being offered is waivers, potentially only covering the two-year period outlined in the Phase 1 deal, this will likely not be enough for Chinese buyers to be willing to commit to US LNG in the longer run.
Indeed, sources familiar with the matter told Reuters in March that China’s Sinopec was ready to sign a 20-year supply agreement with the US’ Cheniere Energy, but only after the trade dispute between their respective countries ends.
In the meantime, trade groups LNG Allies and the American Exploration & Production Council have urged Trump to count the value of long-term LNG contracts towards China’s obli- gations under the Phase 1 deal.
“While it is possible for China to meet a por- tion of these commitments through the spot purchase of US LNG, it is simply impossible for them to reach the full levels anticipated under the agreement given current economic and energy market conditions,” the groups wrote in a letter to Trump last week.
On May 21, White House economic adviser Larry Kudlow said on a webcast that the Phase 1 deal remained intact despite Chinese purchases of US goods are running behind schedule.
Kudlow told the Washington Post that US Trade Representative Robert Lighthizer
and Treasury Secretary Steven Mnuchin had “reported to the president that the deal is intact and China has every intention of implementing it”. However, given how much China will strug- gle to meet the purchasing obligations under the deal, it seems likely that the issue will soon re-emerge.
Cargo cancellations
In the meantime, US LNG producers continue to see rising numbers of cargo cancellations. On May 21, Bloomberg reported that up to 17 cargoes for loading in July from Cheniere’s ter- minals had been cancelled. Customers seeking to cancel July cargoes had to give notice by May 20, according to the news service. The nature of Cheniere’s contracts mean that buyers still pay a tolling fee for cancelled cargoes, but it is gen- erally more cost-effective to cancel a shipment from a US producer than it would be under the types of contracts typically used by Qatari or Australian projects.
Bloomberg estimates that across all US LNG projects, buyers may cancel 35-45 cargoes con- tracted for loading in July. Argus Media previ- ously reported that up to 25 cargoes scheduled for loading in June from US terminals had been cancelled, so if these numbers are correct, can- cellations are still on an upward trajectory.
Given this steady increase in the number of cancellations, the ability to send cargoes to China once again comes as a very welcome development for US LNG producers. How long this phase of LNG shipments going to China will last, however, is a different question.™
It is generally more cost- effective
to cancel a shipment from a US producer.
A growing number of cargoes scheduled for loading this summer from Cheniere’s terminals are reported to have been cancelled.
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w w w . N E W S B A S E . c o m Week 21 28•May•2020