Global LNG

Published at 18:08 7 May 2019 by

Production at new trains expected to be putting first exports on the water in 2019 has been disappointing as we move through the summer. First exports from Prelude are only likely to be in June, while cargo-tracking data provides weak evidence that train 2 at Ichthys is putting new volumes into the market. In addition, first gas from new US trains is unlikely until June, when Cameron LNG T1 and Corpus Christi T2 are expected to start up. Still, Kpler data show global LNG exports for the current week at a record high, which was unexpected given Q2 is often a favoured time for train maintenance. We still assess the TTF as being overpriced for both summer 2019 and winter 2019-20, suggesting that the whole curve needs to reprice down. The JKM would follow, with heavy supply spilling into a market in which demand is still weak.

With the TTF trading largely flat last week, the global market is looking for some direction but it really is unclear if it has found it yet. The JKM-TTF spread was largely unmoved except for the Jun-19 contract, where the spread rose by 20 cents/mmbtu to over 80 cents/mmbtu. With only about a week until expiry of the Jun-19 contract, not much trading is left in that contract and the movement in the spreads across the remaining summer 2019 contracts suggest that the JKM is still trading firmly on TTF movements. While NE Asian demand is only going to gradually return after winter ended with high stock levels, the supply side has been resilient and Kpler data put exports in the current week at an all-time high of 8.3 Mt, although this might be revised down. With the global market showing few signs of a seasonal lull in production, this points to limited maintenance, as new trains due online in 2019 have otherwise failed to materialise to the extent initially expected.  

In terms of the imminent Australian trains, the mysterious delays to the 3.6 Mtpa Prelude FLNG project were not really clarified. Shell did say last week that the first LNG cargo would be shipped this quarter, so we are now expecting first exports in June. In terms of Ichthys, a spike in exports in the week beginning 15 April to levels never previously recorded at the facility (0.21 Mt) did suggest that the 4.2 Mtpa train 2 was starting up. While commissioning of new trains often happens in fits and starts, the subsequent two weeks have seen a return to average weekly exports (0.14 Mt) at levels more consistent with the previous months. We have heard suggestions that train 2 is online but far from operating at baseload due to feedstock limits, but it is still unclear exactly what is happening at Ichthys in terms of getting train 2 online.

Fig 1: Global weekly LNG supply, Mt Fig 2: Ichthys weekly LNG exports, Mt
Source: Kpler, Energy Aspects Source: Kpler, Energy Aspects

US trains—further developments

There are three trains in the US expected to start up in summer 2019 and the market is closely watching the projects for signs of first LNG exports. Some key updates came in last week’s earnings call from construction firm McDermott, which is lead contractor on both the Cameron LNG and Freeport LNG projects. With regards to Sempra’s Cameron LNG project, McDermott reaffirmed that the first 4.4 Mtpa train 1 will be completed in Q2 19, with our estimate being first LNG exports in June. However, the company said that initial LNG production will now be in Q1 20 at the 4.0 Mtpa train 2 and in Q2 20 at the 4.0 Mtpa train 3, pushing the date back by one quarter for both units. For Freeport LNG, McDermott said the three 4.4 Mtpa trains will come online in Q3 19 (train 1), Q4 19 (train 2) and Q1 20 (train 3), effectively bringing trains 2 and 3 forward by one quarter. The net impact on the balances is minimal, largely because trains between the two projects are just swapping starting-up quarters. Given those timings, we still expect the Freeport train 2 to be exporting no earlier than December, with project developer Freeport saying that it has yet to shift its own schedule for first exports from Q1 20 for the train.

The other train to be starting up this summer is Corpus Christi T2. There has been little news here. The latest Cheniere guidance is still for substantial completion in H2 19, with the commissioning process having begun in early 2019 and first exports still expected in June-July.

While new projects under construction continue to move forwards, so do projects in the planning stage. The 13.5 Mtpa Port Arthur LNG project received its DoE approval to export to non-FTA (free trade agreement) countries. In April, Port Arthur LNG received FERC authorisation to site, construct and operate the liquefaction project. With most of its authorisations now in place, the project does need to sign up more offtakers before it moves to FID, having only sold 2 Mtpa under a long-term SPA with Poland’s PGNiG. Also receiving its DoE approval to export to non-FTA countries was Tellurian’s 27.6 Mtpa Driftwood LNG project, which also received its FERC construction and operation authorisation in April. Like Port Arthur, Driftwood needs to land some binding SPAs before an FID becomes possible.

Venture Global LNG announced that its 20 Mtpa Plaquemines LNG facility received FERC’s final environmental impact statement, which the company states is putting the project on track for an FID, commencement of construction in late 2019 and full commercial operations in 2023. Such a timescale does feel ambitious and, again, the project needs to finalise more long-term SPAs before an FID is likely to be forthcoming, with only around 1 Mtpa of that project covered by an offtake agreement. Venture Global LNG also announced that FERC accepted its pre-filing request for the 20 Mtpa Delta LNG project to be located on the Mississippi River. This is very early days for this project, with it being a good couple of years from Venture Global LNG even being able to consider an FID.

Pembina announced a delay to the planned start-up of its 7.5 Mtpa Jordan Cove LNG export terminal in Oregon, by a year to 2025. Pembina has not abandoned the project but has limited incremental funding to about $50 million to support finalising the remaining regulatory and permitting requirements. Pembina said it expects a final FERC decision on its environmental impact statement by January 2020, while state-level permits should be completed by the end of 2019. While the project has non-binding SPAs of more than 7.5 Mtpa, it only expects to conclude binding offtake agreements with prospective customers by early 2020.

While actual substance on the matter was in short supply, the market did see plenty of talk about a potential presidential waiver relating to the Jones Act for US LNG. The Jones Act requires any goods being moved from one state to another by marine transport to be done using a ship built, owned and operated in the US. With there being no compliant Jones Act LNG tankers, the US Northeast is required to import LNG from outside of the US rather than directly take US-produced LNG. The latest indication is that the president is not going to provide the waiver, so this one source of inefficiency in the global market is likely to continue.

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