Gunvor Group Ltd. has thrown its support behind the Commonwealth liquefied natural gas (LNG) export project through an agreement that would see the LNG trading heavyweight commit to take more than a third of the capacity at the Cameron Parish, LA, facility.
Under the agreement, Gunvor will commit to take up to 3 million metric tons/year (mmty) of LNG offtake from the facility. The trading house will also support Commonwealth in securing binding LNG offtake and gas supply agreements for the full 8.4 mmty of capacity at the facility.
“In this highly competitive market, it is critical for companies, particularly ones pursuing an LNG greenfield project, to recognize their core competencies and strengths,” said Gunvor’s Kalpesh Patel, co-head of LNG Trading. “Commonwealth LNG’s engineering and procurement team is best in class. And, now, with the comprehensive support of Gunvor’s LNG and U.S. Gas marketing team, Commonwealth LNG will excel not only at controlling costs and project execution, but also at commercializing their project and creating the lowest cost offering on the U.S. Gulf Coast.”
The Commonwealth facility is planned for a 393-acre site on the west side of the Calcasieu Ship Channel and would boast six liquefaction trains. The company, in its official filing to federal regulators in August, is also seeking authorization to build six LNG storage tanks, one marine loading berth and a 3.04-mile long, 30-inch diameter pipeline to deliver gas to the facility from interconnects with existing interstate and intrastate pipelines.
Commonwealth expects to make a final investment decision (FID) in 1Q2021, about six months after its previous target, and deliver its first shipments of LNG in 2Q2024.
Gunvor in September also agreed to help build five new LNG import terminals across Pakistan, a country viewed by other LNG developers as an emerging demand market. Pakistan currently has two operational LNG import terminals with a combined total capacity of 1.2 Bcf/d. A third terminal is slated to become operational next year, adding another 600 MMcf/d of capacity.
Although FID is still more than a year away, the Commonwealth project is part of an extensive lineup of second-wave export projects vying for a slice of the global demand pie. Arlington, VA-based Venture Global LNG Inc. sanctioned its 10 mmty Calcasieu Pass LNG terminal this summer, while NextDecade Corp.’s Rio Grande and Tellurian Inc.’s Driftwood facilities are targeting FIDs in 2020.
“We believe Gunvor’s substantial capabilities in LNG marketing and overall market presence, coupled with Commonwealth’s strengths in engineering, construction and project execution, create a dynamic combination that ultimately differentiates Commonwealth from every other U.S. LNG project currently chasing FID,” Commonwealth CEO Paul Varello said.
With the first wave of U.S. LNG export projects almost in the rear-view mirror, the glut of global supplies and low prices has given the market some pause about the potential of new projects trying to get off the ground. Just last week, Singapore-based Pavilion Energy Pte. Ltd. reportedly cancelled a U.S. cargo from Cameron LNG in Louisiana. The company has a long-term, take-or-pay supply deal with Japan’s Mitsubishi Corp., one of the Cameron project’s sponsors.
Meanwhile, near-curve LNG prices moving into backwardation heightens the risk of shut-ins by eliminating the option to load cargoes for later sale, according to Energy Aspects. This is likely what drove Pavilion’s decision to reject the cargo and puts other U.S. cargoes at risk unless pricing improves.
“When global netbacks were challenging for U.S. exports late this summer, the contango in the near-term curve still offered an incentive to load cargoes for sale on future-dated markets,” Energy Aspects said. “The flattening and backwardation in the LNG near curve eliminate that incentive, meaning all U.S. cargoes need to find a home immediately after export.”
The firm sees some modest relief for U.S. spot exports coming from the softening of freight rates, as the last of the floating storage booked for September-December is unloaded, which will increase vessel availability. However, freight rates remain high, at around $113,000/day on Nov. 18, and would offer no incentive for new floating storage unless Japan Korea Marker January 2020 prices drop considerably against February 2020 prices.
Meanwhile, Europe, generally seen as the balancing arm for the global market, is testing its physical limitations, with near-full underground storage, high terminal storage and record-high sendout at some terminals, according to Energy Aspects.
“LNG offers into Europe may have to price at a deep discount to Summer 2020 to encourage firms to take that supply in favor of underground storage withdrawals and roll their inventories into the 2020-21 storage year,” the firm said.
Any potential upside to global LNG prices could come from a lack of a transit deal between Ukraine and Russia, though, Energy Aspects does not consider that in its base-case scenario. Weather outlooks also provide a dismal outlook for the remainder of the winter.