Spot LNG gains on Australia, US problems

Energy

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Spot LNG prices strengthened from mid-August to mid-September on the back of ongoing repair work in Australia and after a hurricane swept through the US, halting output from two major LNG plants.

The ICIS East Asia Index (EAX) for October-delivered cargoes averaged $4.289/MMBtu, up 53% from the previous month, as the market staged a recovery from previous rock-bottom levels. The average remained some 6% lower than the same year before.

Spot LNG gains on Australia

The EAX opened the period at $4.05/MMBtu on 17 August, rose to highs of $4.80/MMBtu then dipped back to $4.50/MMBtu on 15 September.

Production problems helped to cut back the global oversupply that had been crushing prices. The operators of Australia’s 5.2 million tonnes per annum Gorgon train two liquefaction plant said that work to repair cracks in propane units would be extended again, to last into October, instead of September. This further extension of the work at Gorgon raises concerns about the possibility of lengthy repair work being needed on the similarly-sized trains one and three at Gorgon. They were built to the same design and need to be checked to see if they should be shut for the same repairs.

Meanwhile, Hurricane Laura swept into the US at the end of August, causing disruption to shipping channels and damaging local power supplies in the Gulf of Mexico area. The five trains of the 22.5mtpa Sabine Pass plant and the three trains at the 13.5mtpa Cameron LNG were all shut, reversing a gradual recovery in output seen since mid-summer when operators had slowed production due to low prices.

Sabine Pass restarted fairly quickly, but Cameron LNG, which suffered power problems, remained offline in mid-September, with flow data showing it was receiving no gas to turn into LNG. It could take until October to restart the plant, market sources said.

Total US gas supply to LNG plants stood at around 7 Bcf/day (or 198 million cubic metres/day) in mid-September. This was up from lows of 3 Bcf/day in mid-summer, but remained below the 9 Bcf/day peaks seen at the start of this year.

Spot LNG gains on Australia

The cutback in US production can be measured through the feedgas going into the plants, or by the number of vessels being exported from them. Ship-tracking data from ICIS market intelligence platform LNG Edge shows that US LNG exports dropped back from around 5 million tonnes per month at the start of 2020 to 2 million tonnes per month in mid-summer. The cutbacks caused by low spot prices had pushed mid-summer exports below the previous year’s levels despite new production facilities having been brought onstream.

Despite the difficulties caused by Hurricane Laura, exports from the US are expected to increase again in the fourth quarter of the year reflecting the stronger spot price and higher demand levels during the northern hemisphere’s winter heating season.

Asia remains at premium to Europe

The ICIS TTF front-month, the key benchmark for European gas, averaged $3.390/MMBtu from mid-August to mid-September, some 90 cents below the EAX. Europe’s storage facilities remain at fairly high levels, but the spread between the US Henry Hub price and the TTF has widened far enough to encourage increased US exports when the plants are capable.

The ICIS South America Index averaged $3.838/MMBtu during the same period, maintaining a small premium to the TTF, though not as strong as East Asia. Meanwhile the Brent crude price during the period averaged $7.567/MMBtu, remaining significantly stronger than spot LNG.

LNG cargoes bought under long-term, oil-linked contracts can still raise much higher prices than the spot market. The latest customs data for Japan collected by LNG Edge, for example, shows that some cargoes were still being sold into the country that month at prices over $10/MMBtu, despite the average EAX price for spot cargoes in July being only $2.189/MMBtu.

China, India increasing annual demand

Spot LNG gains on Australia 3

Many major importers are showing similar levels of LNG demand to last year, rather than showing dramatic falls due to the coronavirus pandemic. LNG is used for purposes including heating and power generation, which are essential services and LNG is not as widely used in the transport sector as oil, so has not been as greatly affected by reduced global mobility.

Import data generated by LNG Edge ship tracking shows that during January-August 2020 China imported 42.7 million tonnes, up 10% from the same period last year. That is despite a year-on-year downturn early in 2020 when the coronavirus first hit the country. The more mature Asian markets of Japan and South Korea show small decreases, with Japan falling 6% to 48.6 million tonnes and South Korea by 2% to 25.9 million tonnes.

India is another growing market that has increased its imports, with its total for the eight months rising 15% to 17.8 million tonnes. There have also been increases in Europe, where producers have sought to dump excess supply. Spain’s imports were up 8% to 11.0 million tonnes and the UK’s up 37% to 9.9 million tonnes.

The weak spot pricing environment this year is more the result of huge increases in global production capacity in recent years than any reduction in demand, though the weak economic situation has meant demand has not grown as fast as it might have done.

By Alex Froley

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