BAKU, Azerbaijan, May 6
By Leman Zeynalova – Trend:
Some US liquefied natural gas (LNG) cargoes could be cancelled by off-takers due to the anticipation of weak futures prices and lacklustre gas and LNG demand globally, Trend reports referring to the analysis of Gas Exporting Countries’ Forum (GECF).
The report shows that although the U.S. has been the cheapest gas market globally over the past few years, the bearish fundamentals in the gas market, which was exacerbated by COVID, have resulted in spot gas and LNG prices dropping below the HH spot gas price towards the end of April.
“In terms of the futures gas and LNG prices, if shipping and liquefaction costs are considered as “sunk-costs”, US LNG is uneconomical for delivery to Europe through October 2020, since the price spreads between Europe and the US are negative during this period. Although the JKM-HH price spreads are positive from July 2020 to April 2021, North East Asia may be unable to absorb the significant growth in global LNG supply in 2020, which is expected to come mainly from the US Under such market conditions, off-takers of US LNG are highly likely to cancel cargoes since they will have to incur further financial losses if these LNG cargoes are sold at a loss in the European market,” said GECF.
GECF believes that another possible scenario may arise where US LNG operators may opt to compete with European importers for flexible LNG cargoes in the Atlantic basin, from Trinidad and Tobago and West Africa.
“The HH futures are trading higher than European futures and at a small discount to JKM futures, which provides a higher netback for delivery to the US considering the shorter distance. This could also facilitate LNG re-export operations from the US,” reads the report.
GECF says that the the outlook for US LNG exports in the next few months look dim, as LNG demand destruction due to COVID coupled with the oversupply in the market has driven global gas and LNG prices to historic lows.
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