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Tuesday, 01 September 20
COVID-19 PUSHES US LNG INTO A TIGHT SPOT - DREWRY
The pandemic-led weak projections for economic growth will derail US LNG exports in full-year 2020 with the country also losing ground in the long term due to major delays in liquefaction projects.
US LNG exports were strong between 2017 and 2019, driven by the shale gas boom, rising demand for natural gas in Asia and higher global LNG prices. The US exported 3.9 million tonnes of LNG in 2016 which increased at a whopping 114% CAGR to 38.2 million tonnes in 2019.
The US is currently the third-largest global LNG exporter with six operational LNG export terminals aggregating 62 mtpa of liquefaction capacity and another 41 mtpa capacity under construction. Brownfiled projects such as Sabine Pass, Corpus Christi, Cameron LNG and Elba Island will reach their full capacities between 2020 and 2027 and greenfield projects such as Golden Pass LNG and Calcasieu Pass will become operational during the same period.
Existing LNG production capacity in the US has been impacted by the pandemic with over 110 LNG cargoes being cancelled by Asian and European customers during June-August due to the low LNG spot price which narrowed the US-Asia and US-Europe price arbitrage. Moreover, major US LNG importers – Japan, South Korea and Taiwan – have seen their LNG demand dwindling, while US-China LNG trade has not been able to pick up as some would have hoped. With projections for LNG spot prices below $5 per MMBtu over the next few years, we expect more cancellations to occur in the coming years making the US a ‘swing LNG producer.’
The ‘second wave’ of LNG liquefaction including mega-LNG projects (such as Driftwood LNG, Port Arthur LNG, Golden Pass, Calcasieu LNG, Plaquemines LNG, Magnolia LNG, Jordan Cove LNG and Rio Grande LNG) constitute over 160 mtpa of planned liquefaction capacity. These projects were initially expected to be operational by 2025, but are currently facing major trouble in securing funding and long-term supply deals required for reaching an FID. Only two projects (Golden Pass and Calcasieu Pass LNG) have attained the FID and have started construction, while over 10 major LNG liquefaction projects which were expected to reach the FID in 2020 have been delayed due to low LNG prices and weak economic growth projections.
The future for these projects looks uncertain as most of them had fixed the all-inclusive selling price for LNG at $8 per MMBtu for Asia ($2 for Henry Hub, $3 for liquefaction, $2-3 transportation) which is highly uncompetitive in the current market. Only a marginal recovery in LNG prices is projected for the next few years which further increases the woes for promoters of the planned projects in securing funding and supply deals. Meanwhile, a major competitor for US LNG, Qatar enjoys a break-even price below $2 per MMBtu as well as proximity to the Asian market. Qatar’s North Field Expansion (NFE) project’s Phase-1 (33 mtpa) and Phase-2 (16 mtpa) are also backed by the government, increasing the probability of their completion and in the process creating more trouble for the planned US projects.
The pandemic has already created severe financial woes for some US projects. For instance, a deal between Driftwood’s promoter Tellurian and India’s Petronet LNG fell through, raising doubts over the proposed 27.6 mtpa project. Although negotiations are still underway, Tellurian faces high competition from Russian and African projects. Shell has also exited the Lake Charles LNG project, increasing the uncertainty of the project for the other participants, while Magnolia LNG’s promoter LNG Ltd has been taken over by another entity after it went bankrupt, delaying the project further.
Some projects like Lake Charles and Rio Grande have gone back to the drawing board and plan to reduce trains to decrease the capex cost while others are cutting workforce and raising loans to keep their projects afloat. Most project developers are hopingfor an easing of US-China tensions and the prospect of securinga share of the rising LNG demand in China, which is projected to grow at over 10% CAGR between 2020 and 2025. However, China’s LNG importers may not be too keen on long-term supply deals with US companies given the current low prices and the uncertainty over US-China trade relations. Ties between China and Qatar are also strengthening with the latter reserving 16 LNG carrier newbuild berths at a Chinese shipyard.
Overall, project delays are expected to hurt the US deeply in the long term while other LNG producers – Qatar, Russia and Mozambique – gain from the narrowing supply-demand gap from 2023 onwards. Qatar has already reserved LNG carrier newbuilding berths at shipyards and has selected a technology partner for the NFE project while Russia’s Arctic LNG-2 is on schedule with added investments made for Arc-7 LNG carriers and large FSUs to keep the Northern Sea Route (NSR) active most of the year.
US LNG woes have had a cascading effect on the LNG shipping market, depressing charter rates. The fall in US-Asia LNG trade has negatively affected shipping demand which, along with cancellations, has increased vessel availability in the market. At present, the fall in charter rates is arrested by a rise in floating storage, but this situation is not sustainable in the long term with LNG prices remaining depressed and over 120 LNG carriers scheduled to be delivered during 2020-21.
An estimated 140 new orders for LNG carriers during 2020-23 would be left hanging if the planned US LNG projects fail to progress. The loss of orders will impact LNG shipyards which have already begun to reel under low orders (only eight vessels were ordered in 1H20). While project-linked ordering from Qatar, Russia and Mozambique will bring some respite the drying up of speculative orders will most certainly be a huge loss for the LNG shipping market as a whole.
To conclude US LNG exports will grow at a slower pace in the coming years as long-term supply deals have already been signed for the under-construction projects. However, stiff competition from other producers amid low LNG prices will impact their share in the Asian market. The fall in US-Asia trade will negatively impact shipping demand and further reduce the number of vessels required for LNG trade. Overall, we expect US LNG exports to be seasonal in the long run with Europe playing a much larger role in the future.
Source: Drewry
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Friday, 01 May 20
LUKOIL SHARES LUBRICANT EXPERIENCE AFTER FIRST 100 DAYS OF OPERATION ON VLSFO
KNOWLEDGE TO ELEVATE
After 100 days of VLSFO operation, LUKOIL Marine Lubricants is sharing recent experience on VLSFO operation with NAVIGO M ...
Wednesday, 29 April 20
OIL CLOSES IN ON PEAK OVERSUPPLY - WOOD MACKENZIE
Are we now deep in the abyss? Up to our necks in it, if the oil price is any guide. Brent has now tested sub-US$20/bbl in this downturn and WTI sub ...
Monday, 27 April 20
INCIDENT INVESTIGATION: SEARCH FOR THE CAUSE, NOT THE VILLAIN - GARD
Incident investigations often conclude with placing the blame for an incident on the crew. Causes of the incidents are usually identified as proced ...
Monday, 27 April 20
A 58,000DWT VESSEL WAS FIXED DELIVERY SINGAPORE TRIP VIA INDONESIA, RE-DELIVERY WC INDIA, AT $4,500 - BALTIC BRIEFING
Capesize
The tide turned this week for the Capesize market, as voyage rates registered dramatically falling fuel costs. This was led primarily ...
Sunday, 26 April 20
STRONGER BUNKER PRICES FAIL TO RALLY FREIGHT MARKET - FIS
VLSFO bunker prices rebounded by $22.50 to $229/mt in the port of Singapore but failed to turn around the spot freight market.
Some ...
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- Thiess Contractors Indonesia
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- MS Steel International - UAE
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- South Luzon Thermal Energy Corporation
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- Miang Besar Coal Terminal - Indonesia
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- Africa Commodities Group - South Africa
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- Posco Energy - South Korea
- GAC Shipping (India) Pvt Ltd
- Samtan Co., Ltd - South Korea
- Semirara Mining and Power Corporation, Philippines
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- Agrawal Coal Company - India
- Eastern Energy - Thailand
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- Orica Mining Services - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- TeaM Sual Corporation - Philippines
- Australian Coal Association
- Georgia Ports Authority, United States
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- Global Green Power PLC Corporation, Philippines
- Antam Resourcindo - Indonesia
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- Kohat Cement Company Ltd. - Pakistan
- PTC India Limited - India
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- Latin American Coal - Colombia
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- Directorate General of MIneral and Coal - Indonesia
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- Therma Luzon, Inc, Philippines
- Alfred C Toepfer International GmbH - Germany
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- Makarim & Taira - Indonesia
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- Australian Commodity Traders Exchange
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- PetroVietnam Power Coal Import and Supply Company
- Sojitz Corporation - Japan
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- Parliament of New Zealand
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- Larsen & Toubro Limited - India
- Kumho Petrochemical, South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Simpson Spence & Young - Indonesia
- Mjunction Services Limited - India
- Global Coal Blending Company Limited - Australia
- Gujarat Sidhee Cement - India
- Edison Trading Spa - Italy
- Kepco SPC Power Corporation, Philippines
- Attock Cement Pakistan Limited
- Aboitiz Power Corporation - Philippines
- Indo Tambangraya Megah - Indonesia
- Mercuria Energy - Indonesia
- Thai Mozambique Logistica
- Coastal Gujarat Power Limited - India
- Kobexindo Tractors - Indoneisa
- SN Aboitiz Power Inc, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Manunggal Multi Energi - Indonesia
- Heidelberg Cement - Germany
- Orica Australia Pty. Ltd.
- Deloitte Consulting - India
- Petron Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Bukit Baiduri Energy - Indonesia
- Indonesian Coal Mining Association
- Lanco Infratech Ltd - India
- Eastern Coal Council - USA
- Bukit Makmur.PT - Indonesia
- Electricity Authority, New Zealand
- London Commodity Brokers - England
- Semirara Mining Corp, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Commonwealth Bank - Australia
- Sical Logistics Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Holcim Trading Pte Ltd - Singapore
- Krishnapatnam Port Company Ltd. - India
- Aditya Birla Group - India
- Maharashtra Electricity Regulatory Commission - India
- Mintek Dendrill Indonesia
- Formosa Plastics Group - Taiwan
- Planning Commission, India
- Straits Asia Resources Limited - Singapore
- Central Electricity Authority - India
- Directorate Of Revenue Intelligence - India
- Ambuja Cements Ltd - India
- Riau Bara Harum - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Timah Investasi Mineral - Indoneisa
- Anglo American - United Kingdom
- GVK Power & Infra Limited - India
- Coalindo Energy - Indonesia
- Minerals Council of Australia
- Ind-Barath Power Infra Limited - India
- Economic Council, Georgia
- Bayan Resources Tbk. - Indonesia
- OPG Power Generation Pvt Ltd - India
- SMG Consultants - Indonesia
- Global Business Power Corporation, Philippines
- Altura Mining Limited, Indonesia
- Chamber of Mines of South Africa
- SMC Global Power, Philippines
- CNBM International Corporation - China
- The University of Queensland
- Siam City Cement PLC, Thailand
- Oldendorff Carriers - Singapore
- PNOC Exploration Corporation - Philippines
- Leighton Contractors Pty Ltd - Australia
- Singapore Mercantile Exchange
- Maheswari Brothers Coal Limited - India
- Banpu Public Company Limited - Thailand
- Malabar Cements Ltd - India
- India Bulls Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Metalloyd Limited - United Kingdom
- LBH Netherlands Bv - Netherlands
- Coal and Oil Company - UAE
- Vedanta Resources Plc - India
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