Summer balances across the global gas markets continue to look soft as the remnants of a mild winter and the onslaught of new supply continues to batter prices. After a surprise repricing up at the start of April, the TTF has already retraced those gains and is back to pricing in relative terms where it had been before the mini-rally. There could still be a bit further to fall for the TTF and the JKM should continue to follow the European benchmark’s lead. Having said that, we are moving closer to the cooling season, so a further narrowing of the JKM-TTF spread is unlikely. However, there is evidence that the 4.4 Mtpa Ichthys T2 is starting to come online, while the 4.0 Mtpa Cameron LNG T1 should be online in July, adding supply to those soft global balances.
The JKM remains resolutely weak and happy to follow the TTF downwards in what is turning out to be a very soft summer for the global gas markets. The TTF fell again last week, as an abrupt end to the heating season and continued healthy LNG imports helped keep the y/y storage surplus in Europe at an unsustainably high level. With the JKM May-19 contract soon to expire, the coming week’s pricing on NE Asia’s LNG benchmark will be all about the developments in Europe and any NE Asian demand for the peak summer period. The Q3 19 contracts should be better supported than Q2 19 contract, as the heavy y/y drops in imports into Japan and South Korea has helped normalise previously high LNG stocks in both of those markets and we are heading into the cooling season. Reflecting that better bid, the JKM-TTF spreads for the remaining summer 2019 contracts all stayed above 60 cents/mmbtu, so NE Asia is still an attractive destination for US cargoes for those months. We think a JKM-TTF spread of 50 cents/mmbtu would be needed to make the TTF the destination of choice for US cargoes, but that the JKM summer contracts will continue to see enough buying not to have to go below that level. As such, while we might see some limited downside to the TTF given how weak the summer balances look and flat prices drop further, the JKM-TTF spread is not likely to narrow.
All about the new trains
The extent of any further weakness in prices from where we are now depends largely on whether new trains come online in a timely manner. A new Australian train, the 4.2 Mtpa Ichthys T2, had been pencilled in for an April start-up and there is some evidence that this is occurring. Over Q1 19, exports from the Ichthys T1 averaged around 0.45 Mt per month (0.11 Mt per week), largely in line with a fully ramped-up train 1. However, over the week beginning 15 April, Ichthys recorded its highest week of exports, at 0.21 Mt, which would require the second train to be operational and ramping up.
|Fig 1: Ichthys exports, Mtpw||Fig 2: US feedgas by terminal, bcf/d|
|Source: Kpler, Energy Aspects||Source: Ventyx, Energy Aspects|
Some mystery remains concerning Shell’s 3.6 Mtpa Prelude project, which was reported as producing LNG at the end of 2018 but has not yet exported a cargo. While Shell tends to play up the fact that first exports should be soon—and first exports of condensate did occur in late March—there is still no sign of an LNG tanker heading towards Prelude. The project is now some four months delayed and even a first export in May seems hardly guaranteed.
The new US trains are also progressing, with the 4.0 Mtpa Cameron LNG announcing that feedgas had been introduced into train 1. Cameron LNG said it is now in the final commissioning stage and will now begin ramping up feedgas deliveries to train 1 as it completes the commissioning process. If the Cheniere trains are anything to go by, this still suggests first LNG exports could still be up to three months away. At Corpus Christi T1, Cheniere introduced feedgas into the facility in late August, announced LNG production in mid-November and first exports in mid-December. Even if Cameron LNG progresses at a faster rate, that would still point to first exports not coming to market until well into July. Such a delay would also point to first exports from the 4.0 Mtpa Cameron LNG T2 being pushed back until the end of the year from start of Q4. With little news coming from the 4.4 Mtpa Freeport LNG, it is still expected to be coming online in September, so its exports are unlikely to make much of an impact on the summer balances. All in all, we still expect that the summer (April-September) balances will provide 16-17 Mt of added supply y/y, given the supply trains that have started up since summer 2018.
FERC did approve the siting, construction and operation of Tellurian’s 27.6 Mtpa Driftwood project in Louisiana and Sempra’s 13.5 Mtpa Port Arthur LNG project. Both will be able to export to free trade agreement (FTA) countries and have applications that would allow them to export to non-FTA countries. Neither project has yet taken an FID.
Lastly on the supply side, Qatar’s 33 Mtpa four-train North Field Expansion (NFE), this year’s biggest expected supply FID, did see progress. Qatar Petroleum (QP) announced it had invited bids for the engineering, procurement and construction (EPC) contracts for the new trains, as well as a separate tender for new ship capacity for the project. QP also announced a technology license agreement with BASF for gas removal and gas treatment facilities for the NFE LNG trains. All that activity suggests an FID is very close. It would be a big surprise if an FID is not given soon.