Global LNG

Published at 17:32 8 Jun 2018 by

JKM prices for peak summer delivery rose over the last week, raising further concerns in the market that Europe is going to see little in the way of incremental volumes this year. With the JKM-TTF spread for the peak summer period now above 2 $/mmbtu, European reloads are once again an economically viable option. Further-dated JKM contracts dropped off in price though, pulled down by some weakness on the TTF. Chinese demand for gas imports was very high again in May, while Malaysia’s big MLNG facility looked like it was having some issues loading cargoes, which could keep the JKM prompt market tight for the coming weeks. ExxonMobil announced it was pulling out of its Tanzanian gas field and LNG export project, but it pledged to push ahead with a 6.2 Mtpa expansion at Sakhalin.

Global gas price movements were mixed this week, with JKM contracts for the peak summer delivery months of July and August both gaining, while all the further-dated contracts saw moderate reductions. While winter 2018 contracts saw only moderate softness, summer 2019 contracts shed 4–5% w/w. The contracts for delivery during the peak of summer 2018 remained trading above 9 $/mmbtu and Dec-18 to Feb-19 contracts for peak-winter delivery were still above 11 $/mmbtu. The TTF contracts for delivery in H2 18 were all softer w/w, and this helped push all the summer JKM-TTF spreads to above 2 $/mmbtu, while peak winter spreads averaged 3.7 $/mmbtu. Those spreads are now wide enough for European facilities to reload LNG for export, including any Yamal cargoes that head west for transshipment, suggesting less LNG sendout in Europe this summer than we have been expecting.

JKM prompt strength seems to be driven by concerns that a hot summer will increase gas burn above the level that would be met by cargoes that have already been bought. This is particularly the case for China, where the 14-day forecast is for CDDs to be above normal and higher y/y. Demand has been fundamentally strong, with Chinese data indicating LNG imports in May were up by around 1.14 Mt y/y (see E-mail Alert: Chinese gas imports continue to rise in May on upstream maintenance and storage fills, 8 June 2018). The weather looks less of a concern in Japan and Korea, where normal/below-normal temperatures are set to persist. The key peak management role played by gas across NE Asia means weather concern has supported the JKM-TTF spread. 

In addition, delays to Australian projects starting up likely pushed some buyers back into the market to find cargoes to replace supply from new trains that has failed to turn up. Reports have circulated that the 3.6 Mtpa Prelude project will now only put first gas into the market in Q4 18.

The 4.2 Mtpa Ichthys 1 was already delayed to the end of Q3 18, while there is still no news on the 4.4 Mtpa Wheatstone 2, which suggests its start-up will also be delayed.

Chinese buying pressure will continue given the confirmation that CNOOC agreed a three-year lease with Hoegh LNG for a bigger FSRU for its Tianjin site to replace its previous charter, which was relocated to India. The new FSRU is the 0.17 mcm Hoegh Esperanza, which is 25 kcm larger than its previous charter. The FSRU appears to be heading to Bontang to pick up a cargo and then would be expected to head back to Tianjin.

Supply also an issue

Supply was also an issue this week, with companies informing the market of maintenance at a number of trains. APLNG announced a rolling maintenance programme, with works over 17-22 July, followed by two similar outages periods—21-26 August and 11-17 September. The outage is expected to affect half of the train’s capacity, or take out around 35 kt of output during each window. Cove Point announced that a short period of maintenance lasting roughly two weeks will be undertaken in the autumn, which could affect up to 0.2 Mt of supply. Still, Chevron announced the modifications made to train 2 at Gorgon were now complete. The outage had reduced weekly production at the train by around 0.07 Mt, but the train has now returned to its more normal levels of output. While maintenance is a normal part of the market, a bigger supply concern was the reports that Malaysia's 24 Mtpa Bintulu LNG plant is experiencing some unidentified technical issues, leading to a backlog of vessels stuck outside the port. Kpler cargo-tracking data suggest around 10 ships are clustered around the terminal, although Kpler supply estimates from the terminal are not yet reflecting a w/w shortfall.

As for the longer term, ExxonMobil announced that it intends to exit its involvement in the development of its Tanzanian gas field and LNG export project, while it would continue to advance the 6.2 Mtpa expansion plan with Rosneft at Sakhalin. It is hard to see any of the Tanzanian LNG projects going forward any time in the near future. On the demand side, two projects to develop regas terminals in Australia announced progress. JERA and Marubeni announced they had chosen a site south of Sydney at Port Kembla for their 2 Mtpa terminal, while AGL said it would take an FID in 2019 on its 2.6 Mtpa FSRU to be located in Victoria.

Fig 1: JKM-TTF forward spreads, $/mmbtu Fig 2: 2018 new terminals, Mtpa
Source: ICE, Reuters, Energy Aspects Source: Company websites, Energy Aspects


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