Page 7 - NorthAmOil Week 08

NorthAmOil COMMENTARY NorthAmOil
trade war with China. There was cautious opti- mism earlier this year, after the two countries signed a preliminary agreement, under which China agreed to dramatically step up imports of US energy. But while China has said last week that it would start accepting applications for exemptions on 696 US-origin goods, including crude and LNG, the coronavirus outbreak has dampened hopes of a speedy resumption to energy trade between the two countries.
What next?
Sluggish demand is being felt beyond China – with the coronavirus complicating an already bearish outlook for the LNG market this year. The drop in prices for the super-chilled fuel is causing some buyers to shun long-term con- tracts, which could potentially lock them into paying a higher price for 15-20 years, in favour of the spot market. Indeed, Cheniere warned on its fourth-quarter earnings call this week that it was struggling to sign new long-term contracts, which could threaten its plans for a third expan- sion phase at Corpus Christi LNG.
“Whether it be the coronavirus or a warm winter, the whole sense of urgency from the customers who sign long-term contracts has dropped,” Cheniere’s CEO, Jack Fusco, said on the company’s earnings call.
Other Cheniere executives indicated on the call that the timing of Cheniere’s decision to pro- ceed with Stage 3 at Corpus Christi LNG could be affected by market conditions. The company recently obtained permission from the US Department of Energy (DoE) to export LNG from Corpus Christi Stage 3 to countries with which the country does not have a free-trade agreement (FTA). The project would involve a change from the design of the first three 4.5mn tpy trains at Corpus Christi, and would involve the construction of seven mid-scale trains with
a combined capacity of 10mn tpy. As things stand, binding supply contracts are thought to be critical to obtaining loans for the construction of Stage 3. Indeed, there was previously specula- tion that Cheniere was on the verge of striking a supply deal with China’s Sinopec, pending the resolution of issues related to the US-China trade war. However, in January, Reuters cited sources familiar with the matter as saying that Sinopec wanted to review the terms of the potential $16bn deal following the collapse of LNG spot prices.
Cheniere expects to make an FID on Stage 3 of Corpus Christi sometime in 2020 – having previously said it would decide by the middle of the year. Fusco also said on the earnings call, in response to an analyst’s question, that his company would not consider signing supply contracts for a shorter duration in order to lock down support for Corpus Christi Stage 3.
“I do think that market will be tougher for us to continue to get our fair share of those con- tracts and be able to commercialise stage three at this point,” Fusco said.
Cheniere has tried to sound a positive note after Spain’s Naturgy Energy Group cancelled two cargoes from the US exporter as a result of the supply glut.
Citing sources familiar with the matter, Bloomberg reported that the cargoes were rejected by Naturgy’s clients Repsol and Endesa, which had originally purchased the volumes from Naturgy and would now pay a contractual fixed fee.
However, Cheniere tried to sound a confident note, saying it did not “view significant or pro- longed curtailment of US LNG production as a likely scenario”.
All eyes will now be on those reporting on the impact of the coronavirus – not just because of the impact on the LNG market.™
Cheniere has tried to sound a positive note after Spain’s Naturgy Energy Group cancelled two cargoes from the US exporter.
Cheniere expects to make an FID on Stage 3 of Corpus Christi sometime in 2020.
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