By CS LNG, Apr 1 2020 12:22PM
LNG SPOT MARKET FLOODED WITH EXCESS CARGOES
Reuters is reporting that LNG suppliers have been flooding the LNG spot market with excess cargoes as global demand continues to dwindle. The lockdowns and strict travel restrictions implemented to help slow the spread of the coronavirus outbreak worldwide have disrupted industrial output, subsequently impacting on LNG demand. The largest drop offs in LNG demand have been recorded in countries such as: India, Italy and Spain. This latest LNG glut is pushing Asian LNG spot prices back towards the record low that was recorded in February (i.e. when Chinese demand collapsed during the initial outbreak of the coronavirus). Prior to the events that led to the record low, prices were already at seasonal lows due to the impact of the ongoing trade war between the US and China, in addition to a warm winter. As LNG spot prices suffer in Asia with gas demand plummeting at double-digit rates, according to IHS Markit, LNG imports to Europe will experience a significant boost. Indeed, estimates suggest that total LNG deliveries to the continent will reach approximately 11 million t (a 14% increase from previous record set in December 2019).
Source: LNG Industry 30/03/2020
CS LNG comment: As the world ‘collapses’ it is no wonder that the market is flooded especially as US exporters follow a capitalistic mentality rather than the pragmatic one of easing in production when a) no one wants it; b) no one actually needs it and c) no one can store it! Charter rates may be holding up for the moment at their current low levels but there is limited storage availability. So maybe the US will shut in soon!
INVESTORS APPLAUD AS WOODSIDE ICES $53B OF LNG PROJECTS
Investors have applauded Woodside Petroleum for taking what they see as the only feasible path with a brutal decision to put $53 billion of LNG growth projects in Western Australia on ice in response to the oil price crash. The deferral of the Scarborough, Pluto-2 and Browse projects represents a turnaround from Woodside's previous determination to press ahead. But it comes after an unprecedented drop in oil prices which has combined with the demand shock from COVID-19 to wreck investment plans across the global industry. "These are extraordinary and challenging times for us, and a few months ago no-one could really have foreseen these circumstances," chief executive Peter Coleman told investors as he advised of a 60 per cent cut to investment spending this year and a 50 per cent drop in total spending to $US2.4 billion. The news of the deferral of the huge projects, which would employ thousands during construction, capped a horror two weeks for the domestic oil and gas sector, which has seen more than 500 contract workers laid off at Woodside-run offshore and onshore gas plants in WA, as well as axed investment plans by Santos and Oil Search. Also on Friday, Beach Energy advised of a 30 per cent cut in its investment budget for 2020-21, while Incitec Pivot and Central Petroleum halted work on a gas project in Queensland and Origin Energy interrupted its Beetaloo unconventional gas drilling project in the Northern Territory. In the broader resources sector, South32 flagged a potential delay to its Eagle Downs coking coal project in Queensland and is suspending a $120 million share buyback, while refiner Viva Energy delayed an off-market share buyback and postponed its annual general meeting. At Woodside, the 2020 target for a final go-aheads on the $US11.4 billion Scarborough and Pluto-2 LNG expansion has been pushed back into 2021, while the late 2021 target for a final investment decision on the $US20.5 billion Browse project has been dropped with no revised target set. "That was essential path forward," said Simon Mawhinney, portfolio manager at value investor Allan Gray, who said he was "ecstatic" about the move to keep valuable gas in the ground until the market improves. "Yet again this company has displayed itself to have been one of the better managed oil and gas companies in Australia." Mr Mawhinney said, adding that Allan Gray has taken the opportunity from the recent dive in share prices to add to its holding in Woodside. Shares in Woodside, which have halved since January, still shed 4.6 per cent to $17.18 shortly before the close of trading. The project delays will rein back capex this year to as low as $US1.7 billion, from an original budget of as much as $US4.4 billion. A remaining budget for discretionary capex this year of about $US600 million leaves scope for further reductions.
Source: Australian Financial Review 27/03/2020
CS LNG comment: As a cryogenic industry maybe, this article should have read into ‘cryogenic storage’ rather than ‘put on ice’ given the length of time this delay will be!
ASIAN PRICES CRASH BELOW $3/MMBTU AS INDIANS TURN AWAY CARGOES
Asian spot LNG prices crashed below $3/mmBtu reversing three weeks of gains, after Indian buyers cancelled or diverted cargoes as a lockdown caused gas demand to slump. The average LNG price for May delivery into northeast Asia LNG-AS was estimated at about $2.80/mmBtu, down 70 cents, or 20% from the previous week, traders said. Prices for cargoes delivered in April were estimated around $3.00/mmBtu, also down 70 cents from a week ago. Indian LNG importers, including top buyer Petronet LNG, Gail (India) and GSPC, issued force majeure notices to suppliers this week as domestic demand and port operations were hit by a nationwide lockdown to curb the spread of coronavirus, sources told Reuters. India’s GSPC also cancelled an import tender for 11 cargoes for deliveries in May to March, a company source said. The force majeure in turn has caused a flood of supply in the spot market, depressing prices, traders said. Qatargas has approached several buyers in Asia and Europe offering cargoes for loading or delivery in April, three sources familiar with the matter said. Two other traders said Qatar had offered about 10 cargoes, though this could not be confirmed. Cheniere Energy also offered a cargo for early April loading from Sabine Pass, traders said. Sakhalin Energy and Petronas were offering cargoes for delivery in May, they added. Indonesia’s Bontang plant may have sold an early-May loading cargo to a Chinese buyer, one source said, though this could not immediately be confirmed. KUFPEC may have sold a cargo for first-half May loading from the Wheatstone plant to a portfolio company at $3 to $3.20/mmBtu, the source added. One the buy side, some requirements were seen from China and Colombia. Thailand’s PTT bought two cargoes for delivery in May from Qatargas at $3.05 to $3.15/mmBtu through a buy tender, traders said. Providing some upside, Woodside Petroleum, which produces LNG at North West Shelf LNG, Pluto LNG and has a stake in Wheatstone LNG in Western Australia, said on Friday its trading team has “recently begun placing some spot production back into China as industrial output and demand restarts”. It added that it would defer major maintenance at the North West Shelf LNG plant in Western Australia as it was slashing spending.
Source: Hellenic Shipping Company 30/03/2020
CS LNG comment: As we mentioned earlier, the world just does not need any more LNG during this virus crisis and given current medical prognosis this could last another 6-9 months! Don’t expect the prices to rise much this year.
HÖEGH BUMPS FSRU INDEPENDENCE FUNDS, NABS LNG CARRIER DEAL
Höegh LNG has secured an extension and upsizing of its FSRU Independence debt facility as well as an interim time charter for one of its vessels. The company received a commitment letter from five of its relationship banks for the amendment and extension of the Independence’s $61 million debt facility maturing in May 2020, Höegh LNG said in its statement on Thursday. Under the new terms, the commercial tranche will be upsized by $45 million to $106 million with maturity in December 2024, with the additional funds available for general corporate use. The Independence debt facility also consists of two tranches guaranteed by export credit agencies which remain unchanged, save for a reduction of their respective funding margins. Further, a unit of the company has entered into an interim LNG carrier time-charter with an Asian-based trading house, for a period of around 7 months from mid-2020. The rate reflects the current term market for large size DFDE LNG carriers, the company said noting that either Höegh Gannet or Höegh Gallant will be deployed for this contract. This charter and other short-term charters concluded increase the group’s contract coverage for 2020 to around 92 percent, the statement reads.
Source: LNG World News 26/03/2020
CS LNG comment: A very ‘cagey’ statement from Hoegh who like most companies have to be suffering at the moment (CS LNG included!) Perhaps the potential purchase option of the Independence by the Lithuanians has been shelved for the time being necessitating the debt facility extension and we doubt that the ‘current market rate’ for their 7 month commitment even covers 50% of their loan repayment on that vessel.
VIRUS LOOKS SET TO DELAY BP’S TANGGUH LNG EXPANSION
BP will be bracing for a delay in the start-up of its third LNG train at the Tangguh LNG project in West Papua province, Indonesia, due to the Covid-19 pandemic. The project already delayed by one year, from the original target completion in 3Q 2020 to 3Q 2021, due to disruption caused by two tsunamis in 2018, now looks set to be delayed further as the workforce building the expansion has been drastically reduced to stem the spread of the coronavirus. Deputy chairman of operations at Indonesian upstream regulator SKK Migas, Julius Wiratno, told local media that, because of the coronavirus, the project has adopted physical distancing among workers. This triggered a drastic fall in workers on site – from 13,000 people to 10,000 as of the third week of March. This will further be cut to 3,000 core workers only. The consortium of contractors, which include Chiyoda and Saipem, building the third 3.8mtpa LNG train, made a decision that they would temporarily stop field work from 15 March due to force majeure, based on the World Health Organization (WHO) declaration of Covid-19 as a global pandemic. However, analysts at Jakarta-based research firm Tenggara Strategics said the consortium’s decision reportedly angered both SKK Migas and BP as it was not yet clear who would be responsible for the resulting cost overruns. The Tangguh Train 3 expansion project comes under a cost recovery contract, meaning SKK Migas – or the government – would ultimately bear the cost, predicted Tenggara. The consortium has already sent many workers home and told them not to return to work until they receive official notifications to do so. After the tsunamis of 2018, which delayed deliveries of construction materials to the site, many of the workers were also sent home, but many of them did not want to return to work. Due to the delay following the natural disasters, the engineering procurement construction (EPC) contractors demanded an adjustment to the EPC cost from $2.4 billion to $3.4 billion. “This time, it is not clear yet how long the coronavirus will delay the project and how much the delay will cost the government,” Tenggara said in its latest report. Sources told Tenggara that the contractors have asked BP to bear all the additional costs caused by the termination of work. These costs include field worker salaries, accommodation costs, heavy equipment costs, logistics costs and subcontractor fees. The sources reported that BP has refused to pay all the costs and instead, asked the consortium to continue with the works for Tangguh Train 3. “According to the source, BP wants to avoid further delay in the completion of Tangguh Train 3 project because such a delay would incur costs greater than that having the works terminated,” reported the research firm. SKK Migas also wants to avoid any cost overrun resulting from work termination to be included under the cost recovery contract. Therefore, after several negotiations, SKK Migas and BP, have requested that the consortium not stop all works and that essential works must continue, reported Tenggara. When Train 3, initially expected to cost $8 billion before any delays, eventually comes online, the total capacity at Tangguh will be 11.4 mtpa. While LNG from Train 1 and Train 2 is mostly for export, 75% of LNG from Train 3 would be supplied to state utility PLN and the remaining 25% for export to Japan’s Kansai Electric Power Company.
Source: Energy Voice 30/03/2020
CS LNG comment: So just how many times can global companies use the excuse of the Covid-19 pandemic for delays, cancellations etc when the reality is the market conditions are really to blame!