June 13, 2024


Delighting finance buffs

LNG suppliers flood market with excess spot cargoes as demand shrinks

Liquefied natural gas (LNG) suppliers are flooding the market with excess spot cargoes, generating fresh headwinds for prices, as demand dwindles globally because the coronavirus outbreak has disrupted industrial output and people’s movement.

The lockdowns and strict travel curbs to try to slow the virus have led to a big drop in demand in countries such as India in Asia, as well as Italy and Spain in southern Europe.

Spain has reported the second-highest number of deaths from the virus in the world. Globally, the number of infections has crossed the half million mark, while more than 24,000 have died.

The LNG glut has pushed Asian spot prices towards a record low last plumbed in February when demand sank in China, where the coronavirus originated late last year.

Spot LNG prices were already at seasonal lows before the virus crisis following a warm winter and the fallout from the trade war between the United States and China.

Total LNG deliveries to Europe are expected to reach nearly 11 million metric tons, a 14{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58} hike from the previous record set in December, according to IHS Markit, which said the supply push comes as gas demand is collapsing at double digit rates.

“Asian buyers are reselling volumes purchased from the United States and portfolio sellers are offloading their excess cargoes as well,” said Michael Stoppard, IHS Markit chief strategist for global gas.

Given the uncertainty, LNG buyers in North Asia had opted for a “downward quantity tolerance” (DQT) when negotiating their annual delivery programmes. Some buyers are exercising the clause that allows them to cut volumes by up to 10{b1ee4ac4d8d7b8e1af61a560a11ca52574b8103b547ccac8037ce0cdf9e7ba58}.

This has also driven sellers to offer the unsold term volumes in the spot market, several traders said.

“We’re seeing more sell tenders these days due to a combination of factors like coronavirus and DQT, but this also means that when demand rebounds, buyers will return to the market to seek spot cargoes,” a Singapore-based LNG trader said.

A gas trader in Spain said everyone was using all the flexibility available in contracts.

“If a contract is not in the money and has downward flexibility, everyone is doing it in whatever way they can: cancelling a cargo, cancelling a volume within a system,” the trader said, asking not to be named.

“Right now if we could cancel, depending on the contract, we would cancel everything we could.”

Qatargas approached buyers in Asia and Europe this week to offer cargoes for delivery or loading in April, sources said.

Traders said it had likely been forced to seek buyers for its excess cargoes after being issued with a force majeure notice by Petronet LNG, the top gas importer for India, which has the world’s second-highest population at 1.3 billion. Qatar is India’s biggest LNG supplier.

Cheniere Energy Inc, the biggest US LNG firm, also offered a cargo for loading in early April from Sabine Pass, which traders said was unusual.

In Australia, Malaysia’s Petronas offered a cargo for loading in May from the Gladstone plant in which it has an equity stake, likely due to a cancellation from a buyer, an industry source said. The details could not be confirmed.

Companies typically do not comment on spot deals.

Asian spot LNG prices dropped below $3 per million British thermal units (mmBtu) this week, after rising for three consecutive weeks, traders said.

They hit a record low of $2.70 per mmBtu last month.

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