At least 26 LNG cargoes scheduled to be loaded at U.S. export terminals in September have been canceled, a drop from July and August amid a forecast for improving netbacks heading into the fall and winter, market sources said.
About 15 of the September cancellations are tied to terminals in Louisiana and Texas operated by Cheniere Energy Inc., the biggest U.S. LNG exporter, the sources said.
At least seven cargoes were canceled from Freeport LNG Development LP in Texas for September loading, the sources said.
Spot North Asian LNG prices increased 2 cents/MMBtu on July 21, with September delivery Platts Japan Korea Marker being assessed at $2.483/MMBtu. First-half September was assessed at $2.375/MMBtu and second-half September at $2.591/MMBtu, with the contango widening to 21.6 cents/MMBtu from 17.5 cents/MMBtu on July 20. Sources said it was likely that most of the latest cargo cancellations would be for loading in the first half of the month.
Low international prices and demand destruction due to the coronavirus pandemic have been blamed for the U.S. cargo cancellations that began in April and now total at least 157, according to S&P Global Platts calculations, resulting in a sharp drop in utilization at the six major natural gas liquefaction terminals on the Gulf and Atlantic coasts.
According to Platts calculations, there were about 40 cancellations for August, 45 for July, 44 for June and two for April. Based on utilization so far in July, the current month's figure could be even higher. Total U.S. feedgas levels hit a 17-month low earlier in July.
U.S. exporters are largely protected by fixed fees they receive when customers cancel, although cancellations force them to lower production, and if a counterparty were to claim force majeure, that could pose a challenge.
Numerous developers of new U.S. liquefaction facilities have delayed final investment decisions until 2021 or stopped providing updated timelines.
At Freeport LNG south of Houston, there was no observable gas flow to the terminal for the 15th consecutive day July 21. Freeport LNG spokesperson Heather Browne declined to comment on terminal utilization or customers' cargoes.
The forward curve suggested LNG trade activity could pick up by late fall or early winter, especially for U.S. deliveries to Europe, as the market contango may provide an opportunity for some loadings to resume. However, the wave of U.S. production will eventually require Asian demand growth to clear, otherwise European gas markets may find themselves inundated with U.S. LNG again this winter, according to S&P Global Platts Analytics.
In the meantime, there could be significant floating storage and slow steaming through the next few months in an effort to exploit the currently steep contango in the forward curves.
Despite the latest cancellations, the market is still seeing offers available for November delivery into Europe, with offers decreasing and narrowing the gap to the bid, according to a London-based trader. However, with September loading volumes either canceled or afloat, the trader said he expected that the month will be just as tight as August in terms of cargo availability.
The source said the Mediterranean is the only place those cargoes will go as incremental demand is expected to arise now and then.
"The biggest question is what is the likelihood of economic activity rebounding, and that's closely tied to individual countries recovering from the effects of COVID-19," said E. Scott Chrisman, a market expert and former global head of LNG marketing for Sempra Energy's LNG unit. "I think it also depends on each of the commercial positions each of the off-takers have, in terms of access to markets and downstream demand."
Harry Weber, Piers De Wilde and Luke Stobbart are reporters with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.