US LNG feedgas drop may mean higher than reported June cargo cancellations

The biggest US LNG export terminal saw its lowest utilization in 16 months as the market disruption triggered by depressed global demand and ultra-cheap international prices continued to take a toll on feedgas demand.

The lower than expected gas deliveries into key terminals such as Cheniere Energy's Sabine Pass in Louisiana in the first half of June have led some traders who spoke to S&P Global Platts to believe that the number of cargo cancellations for the month could actually have been higher than initially reported.

These trends have hit participants along the LNG value chain, from the wellhead to the end-user. Cash prices for next-day flows fell across the board in the US Southeast on June 15, with most locations seeing double-digit downward movement towards multiyear lows.

In a recent interview with Platts, a senior executive at France's Total, a major offtaker of US LNG, said that while global oversupply was not a surprise given the wave of new capacity coming online, the scale of the glut triggered by the coronavirus pandemic was more intense than could have been reasonably expected.

Looking past June into July, the spot value of US-loading cargoes remains depressed relative to the cost of feedgas, despite a recent demand uptick in the European market.

Based on the latest available data, the spread between the Platts Gulf Coast Marker and the NYMEX Henry Hub was still more than negative 15 cents/MMBtu. This metric implies that on a spot-basis, cargo loadings out of the US likely remain uneconomical. When the attrition rate of feedgas used up in the liquefaction process is considered, the spot economics become even less attractive.

The Platts GCM was assessed at $1.625/MMBtu on June 15. The Platts JKM and Mediterranean Marker were assessed at $2.100/MMBtu and $1.933/MMBtu, respectively, on the same day.

Total US LNG feedgas deliveries dropped below 3.8 Bcf/d for the fourth time this month, helping draw the monthly average down to just under 4.1 Bcf/d, a 37% drop from May, according to Platts Analytics data.

The declines have been most apparent at Sabine Pass, at Cheniere's other terminal near Corpus Christi, Texas, and at Freeport LNG in Texas.

At Sabine Pass, where Cheniere operates five trains and is building a sixth, gas deliveries totaled 735 MMcfd/d on June 15, the lowest level since Feb. 6, 2019, Platts Analytics data show. The reduction in feedgas suggests that the equivalent of several trains could be sharply underutilized or are not being utilized at all. Gas deliveries to Corpus Christi Liquefaction also have been down substantially since the beginning of the month.

A Cheniere spokesman declined to comment on utilization at the two facilities.

Feedgas deliveries to Freeport LNG are averaging just 0.13 Bcf/d over the most recent two weeks, well below the capacity of a single train, which stands at around 0.67 Bcf/d. A spokeswoman for the facility has repeatedly declined to comment on the drop-off.

Market outlook

Projecting forward the current restricted rate of feedgas suggests that upwards of 44 cargoes may have been cancelled for loading in the US for June, well above market reports, which were largely in the 20-30 cargo range. Approximately 45 cargoes were said to have been canceled for July.

Platts Analytics expects feedgas could further decline in July and August, given market reports of cargo cancellations and persistent weakness in forward LNG netbacks, which have all but eliminated spot LNG trading out of US export facilities.

Cash Henry Hub fell 14.50 cents on June 15 to a preliminary settlement of $1.46/MMBtu, just shy of the 20-year low of $1.445/MMBtu reached on April 3, 2020.