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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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Tuesday, 26 July 22
CAP RUSSIA'S OIL PRICE NOW - PROJECT SYNDICATE
Though the price of oil has declined in recent weeks, it is still through the roof, filtering through to gasoline prices, and causing economic and ...
Tuesday, 26 July 22
WILL SOUTH AMERICA’S WINTER DEMAND DRAW LNG CARGOES AWAY FROM EUROPE? - ICIS
South America is now in the middle of its winter demand season. Last year the region increased its share of global LNG imports in winter, with Braz ...
Monday, 25 July 22
GLOBAL 2021 COAL-FIRED ELECTRICITY GENERATION SURGES TO RECORD HIGH - REUTERS
By contrast, mine output was still fractionally below the record set between 2012 and 2014 because older and less efficient coal generators have be ...
Saturday, 23 July 22
THE EU HAS BEEN REDUCING IMPORTS OF RUSSIAN REFINED OIL PRODUCTS SINCE MARCH - BANCHERO COSTA
The European Union could now ban the import and transit of fuel oil from Russia around six months ahead of the planned deadline, an EU official and ...
Saturday, 23 July 22
INDONESIA CONSIDERING SCRAPPING DOMESTIC SALES RULE FOR PALM OIL EXPORTS - REUTERS
Indonesia is considering removing a domestic sales requirement for palm oil exports because high inventories of the vegetable oil have been holding ...
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- Sree Jayajothi Cements Limited - India
- Cigading International Bulk Terminal - Indonesia
- Bukit Makmur.PT - Indonesia
- Jaiprakash Power Ventures ltd
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sakthi Sugars Limited - India
- Global Business Power Corporation, Philippines
- Deloitte Consulting - India
- Neyveli Lignite Corporation Ltd, - India
- Barasentosa Lestari - Indonesia
- Kumho Petrochemical, South Korea
- South Luzon Thermal Energy Corporation
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- Anglo American - United Kingdom
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- Salva Resources Pvt Ltd - India
- Coalindo Energy - Indonesia
- Formosa Plastics Group - Taiwan
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- Baramulti Group, Indonesia
- Bhushan Steel Limited - India
- Heidelberg Cement - Germany
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- Minerals Council of Australia
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- PowerSource Philippines DevCo
- Power Finance Corporation Ltd., India
- Pipit Mutiara Jaya. PT, Indonesia
- Latin American Coal - Colombia
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- Toyota Tsusho Corporation, Japan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Petron Corporation, Philippines
- Globalindo Alam Lestari - Indonesia
- Vizag Seaport Private Limited - India
- Economic Council, Georgia
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- Bukit Asam (Persero) Tbk - Indonesia
- Tamil Nadu electricity Board
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- Vedanta Resources Plc - India
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- Planning Commission, India
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- The University of Queensland
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- PTC India Limited - India
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- Antam Resourcindo - Indonesia
- Bayan Resources Tbk. - Indonesia
- Straits Asia Resources Limited - Singapore
- Eastern Energy - Thailand
- GN Power Mariveles Coal Plant, Philippines
- Electricity Authority, New Zealand
- White Energy Company Limited
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- Bharathi Cement Corporation - India
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- Standard Chartered Bank - UAE
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- Global Coal Blending Company Limited - Australia
- Siam City Cement - Thailand
- India Bulls Power Limited - India
- Bulk Trading Sa - Switzerland
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- Indogreen Group - Indonesia
- Marubeni Corporation - India
- Electricity Generating Authority of Thailand
- Attock Cement Pakistan Limited
- Cement Manufacturers Association - India
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- Orica Australia Pty. Ltd.
- GAC Shipping (India) Pvt Ltd
- Leighton Contractors Pty Ltd - Australia
- Bhoruka Overseas - Indonesia
- Independent Power Producers Association of India
- Posco Energy - South Korea
- Petrochimia International Co. Ltd.- Taiwan
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Maheswari Brothers Coal Limited - India
- Billiton Holdings Pty Ltd - Australia
- Sarangani Energy Corporation, Philippines
- Commonwealth Bank - Australia
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- TNB Fuel Sdn Bhd - Malaysia
- Asmin Koalindo Tuhup - Indonesia
- New Zealand Coal & Carbon
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- Tata Chemicals Ltd - India
- GMR Energy Limited - India
- Holcim Trading Pte Ltd - Singapore
- Intertek Mineral Services - Indonesia
- Oldendorff Carriers - Singapore
- Indian Oil Corporation Limited
- Parliament of New Zealand
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- Medco Energi Mining Internasional
- Dalmia Cement Bharat India
- Directorate General of MIneral and Coal - Indonesia
- PNOC Exploration Corporation - Philippines
- Thai Mozambique Logistica
- ICICI Bank Limited - India
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- MS Steel International - UAE
- Trasteel International SA, Italy
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- Meralco Power Generation, Philippines
- Aboitiz Power Corporation - Philippines
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- Bhatia International Limited - India
- Sojitz Corporation - Japan
- Central Java Power - Indonesia
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- Malabar Cements Ltd - India
- Energy Development Corp, Philippines
- Uttam Galva Steels Limited - India
- Indian Energy Exchange, India
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