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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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Saturday, 23 July 22
STABILITY OF RUSSIAN GAS FLOWS REMAIN UNCERTAIN, DESPITE THE REOPENING OF NORD STREAM - WOOD MACKENZIE
Gazprom confirmed today that regular annual maintenance of Nord Stream is officially over and gas flows restarted at 63 million cubic metres per da ...
Friday, 22 July 22
MARKET INSIGHT - INTERMODAL
Faced with uncertainty regarding the most cost-efficient alternative fuels and the future dominant method to reduce their greenhouse emissions, man ...
Friday, 22 July 22
YANCOAL AUSTRALIA CUTS 2022 COAL OUTPUT VIEW AS FLOODS, COVID BITE - REUTERS
Coal miner Yancoal Australia Ltd YAL.AX cut its 2022 output forecast on Wednesday, signalling a hit from higher-than-expected rainfall, COVID-19-le ...
Wednesday, 20 July 22
BOOST FOR BIOFUELS AS IMO REMOVES REGULATORY HURDLE - GARD
MARPOL Annex VI regulations were written for petroleum derived fuels but also apply to biofuels. It has been a challenge to meet the regulatory req ...
Wednesday, 20 July 22
INDONESIA’S COAL EXPORTS TO THE EU INCREASED SIGNIFICANTLY RECENTLY
European countries have increased coal imports from Indonesia due to the energy crisis that hit the region after Russia cuts gas exports to Europe. ...
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- Bhatia International Limited - India
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- The University of Queensland
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- Energy Link Ltd, New Zealand
- White Energy Company Limited
- Electricity Authority, New Zealand
- Alfred C Toepfer International GmbH - Germany
- Maharashtra Electricity Regulatory Commission - India
- Ind-Barath Power Infra Limited - India
- Savvy Resources Ltd - HongKong
- Malabar Cements Ltd - India
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- Australian Coal Association
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- CNBM International Corporation - China
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- Indian Oil Corporation Limited
- Economic Council, Georgia
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- Eastern Energy - Thailand
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- GN Power Mariveles Coal Plant, Philippines
- Straits Asia Resources Limited - Singapore
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- IEA Clean Coal Centre - UK
- Global Business Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
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- Rio Tinto Coal - Australia
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- Anglo American - United Kingdom
- Eastern Coal Council - USA
- Kepco SPC Power Corporation, Philippines
- Borneo Indobara - Indonesia
- Bukit Baiduri Energy - Indonesia
- Siam City Cement - Thailand
- Attock Cement Pakistan Limited
- Indian Energy Exchange, India
- Bhushan Steel Limited - India
- Leighton Contractors Pty Ltd - Australia
- Thai Mozambique Logistica
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- Sinarmas Energy and Mining - Indonesia
- Mjunction Services Limited - India
- Sarangani Energy Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- New Zealand Coal & Carbon
- OPG Power Generation Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Deloitte Consulting - India
- Maheswari Brothers Coal Limited - India
- Bukit Makmur.PT - Indonesia
- Grasim Industreis Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Africa Commodities Group - South Africa
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- Wood Mackenzie - Singapore
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- Altura Mining Limited, Indonesia
- European Bulk Services B.V. - Netherlands
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- Sakthi Sugars Limited - India
- Directorate General of MIneral and Coal - Indonesia
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- Pipit Mutiara Jaya. PT, Indonesia
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- Asia Pacific Energy Resources Ventures Inc, Philippines
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- Tata Chemicals Ltd - India
- Bharathi Cement Corporation - India
- Global Coal Blending Company Limited - Australia
- Ministry of Mines - Canada
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- McConnell Dowell - Australia
- India Bulls Power Limited - India
- Oldendorff Carriers - Singapore
- Dalmia Cement Bharat India
- Posco Energy - South Korea
- Chettinad Cement Corporation Ltd - India
- GAC Shipping (India) Pvt Ltd
- AsiaOL BioFuels Corp., Philippines
- Latin American Coal - Colombia
- Karaikal Port Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
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- Price Waterhouse Coopers - Russia
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- Parliament of New Zealand
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- Chamber of Mines of South Africa
- Jorong Barutama Greston.PT - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Bangladesh Power Developement Board
- Coalindo Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Antam Resourcindo - Indonesia
- Georgia Ports Authority, United States
- Vedanta Resources Plc - India
- Coal and Oil Company - UAE
- Power Finance Corporation Ltd., India
- Cigading International Bulk Terminal - Indonesia
- SMG Consultants - Indonesia
- Siam City Cement PLC, Thailand
- London Commodity Brokers - England
- Intertek Mineral Services - Indonesia
- Parry Sugars Refinery, India
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- Ministry of Transport, Egypt
- SMC Global Power, Philippines
- Goldman Sachs - Singapore
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- Therma Luzon, Inc, Philippines
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- Tamil Nadu electricity Board
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- Kaltim Prima Coal - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Planning Commission, India
- Ministry of Finance - Indonesia
- Pendopo Energi Batubara - Indonesia
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- Edison Trading Spa - Italy
- Agrawal Coal Company - India
- Independent Power Producers Association of India
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- San Jose City I Power Corp, Philippines
- PNOC Exploration Corporation - Philippines
- The State Trading Corporation of India Ltd
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- GMR Energy Limited - India
- Electricity Generating Authority of Thailand
- Metalloyd Limited - United Kingdom
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Semirara Mining Corp, Philippines
- Renaissance Capital - South Africa
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- PowerSource Philippines DevCo
- Ceylon Electricity Board - Sri Lanka
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