U.S. liquefied natural gas (LNG) exports were down slightly week/week between Nov. 28 and Dec. 4, a stretch that not only included the Thanksgiving holiday but one that saw more bearish sentiment spill into the global market as the year comes to an end.
Ten export vessels, including five from Sabine Pass, two from Corpus Christi, and one each from Cove Point, Cameron and Freeport, departed U.S. shores with a combined carrying capacity of 36 Bcf, according to the Energy Information Administration. That’s down slightly from the 12 vessels and 43 Bcf that sailed in the prior week.
Volumes should remain steady, however, as export terminals along the Gulf Coast hit additional milestones over roughly the same time. McDermott International Inc. said in early December it was at the final commissioning stage and introducing feedgas to the second train at Cameron LNG in Hackberry, LA. That facility came online over the summer.
McDermott also said on Friday (Dec. 6) the second train at Freeport LNG on Quintana Island in Freeport, TX, has begun producing LNG, a “precursor to first cargo.” Train 3 remains on schedule, it added, with first LNG production scheduled by the end of March. Train 1 started producing the super-chilled fuel in August and entered commercial service on Sunday.
Cheniere Energy Inc. also recently requested permission from FERC and the Pipeline and Hazardous Materials Safety Administration to return to service a storage tank that was damaged in an accidental release of LNG early last year at its Sabine Pass export facility in Louisiana. While the incident knocked two storage tanks offline, the company wants to bring one back while it works to meet requirements set by regulators for the other.
Sabine Pass, which sent out the first exports in 2016, has continued to ramp up volumes with loadings on a daily basis unlike other facilities on the Gulf Coast. While the company has three other storage tanks at the facility, another would enhance operational flexibility.
Increasing supplies, however, continue to weaken the global market. Fitch Ratings joined the bearish fray earlier this month, with credit analysts indicating they expect LNG prices to remain pressured through next year and beyond, despite the start of winter in the northern hemisphere, which typically drives seasonal demand for the fuel.
The winter season is being thwarted by more than 40 million metric tons of new capacity that have come online this year worldwide, predominantly in the Lower 48, where Fitch said exports increased by 58% year/year in the first half of 2019.
In a related note, Genscape Inc. said U.S. exports via feedgas to LNG export terminals and pipelines to Mexico averaged 12.28 Bcf/d in November, or 3.4 Bcf/d more than at the same time last year. The strength of that baseload-like demand could eventually create volatility in the U.S. spot market, analysts recently told NGI. Prices could fall significantly at some trading points, especially if the Gulf Coast export terminals are shut-in at any point next year due to the global gas glut. NGI data confirm the upward trend showing deliveries to LNG export facilities averaging 7.7 Bcf/d month-to-date. This figure represents a 3.25 Bcf/d rise since January as deliveries to LNG facilities now well exceed pipeline flows across the border into Mexico.
Sellers are feeling the squeeze in various markets, including in Asia, where prices are seen falling through the winter as spot demand remains limited. LNG for January delivery at the Japan Korea Marker (JKM) stood at $5.615/MMBtu on Friday (Dec. 6), with futures lower throughout the winter months. The April contract stood at $4.825/MMBtu.
The maximum Gulf Coast LNG netback price for January delivery between the Dutch Title Transfer Facility, JKM and National Balancing Point on Friday (Dec. 6) was $4.061/MMBtu, or $1.727 above where Henry Hub futures settled, according to NGI data.
Signs of slowing growth in China, one of the world’s leading LNG importers, continue to take shape as the economy weakens, pipeline imports rise and the country’s trade war with the U.S. drags on. New supplies that aren’t expected to immediately impact LNG inventories started flowing this month from Russia on Gazprom’s Power of Siberia pipeline, but the new infrastructure is clouding the longer-term outlook for LNG exports to China.
Storage inventories are high in Europe as well. Tellurian Inc., developer of the proposed Driftwood LNG export terminal in Louisiana, noted in its market commentary last Wednesday (Dec. 4) that the UK’s three regasification terminals were expected to send out LNG at an all-time high, “essentially pushing out European piped gas imports” for that day.
Natural gas in underground storage in Europe stood at 92.8% of capacity as of Friday, versus a level of 79.4% at the same time last year, according to data compiled by ClipperData. LNG inventories on the continent were at 59.7% of capacity, or slightly below the level of 60.1% at the same time last year, according to the firm.
ClipperData’s Kaleem Asghar, director of LNG analytics, said Russian gas flows into Europe remained steady from the OPAL and NEL pipelines. Meanwhile, as of Friday (Dec. 6) 32 vessels had arrived at different European LNG terminals over the previous seven days, versus the 26 that came in over the same time last year.
“Overall market sentiments remained bearish on the over abundance of LNG molecules thanks to” recent capacity expansions in Australia, Russia and the U.S., Asghar told NGI.
The shipping market has also been impacted, according to Fearnleys AS.
“Ship owners enjoyed a mini-boom from early October, however, the firm sentiment was short-lived as the market has moderated in the last few weeks,” the ship broker said in a note last week.
The longer-term outlook for charters is stronger as an LNG supply gap is seen opening between 2022 and 2025, But near term, “the lackluster performance of the product market, subdued shipping demand for the winter and an increase in tonnage availability, not just from independent owners, but also sublets, have contributed to the sentiment change,” Feranleys added.
Despite the flood of European supplies, the United States is continuing efforts to diversify energy supply in Eastern Europe and reduce reliance on Russian imports. Poland’s Energy Regulatory Office (ERO) said last week that Federal Energy Regulatory Commission Chairman Neil Chatterjee met with ERO President Rafal Gawin. The two discussed “methods of detecting and preventing manipulation on the energy market, development of the LNG sector” in the United States and Europe, along with renewable energy sources.
“Overseeing the delivery of safe, affordable and reliable energy to consumers who trust the credibility of our work is fundamental,” Chatterjee said of efforts in Eastern Europe. “Given the huge intersection between energy and security issues, we will also discuss the importance of protecting the vital needs of energy consumers.”