The Aug-19 US export arb reopened at the end of last week, with weakness at Henry Hub in contrast to strength at the TTF and the JKM. With only nine days left to decide whether to cancel lifting a cargo from Sabine Pass during August, the global market will have to find room for most, if not all, of the US volumes this summer. US exports are being swelled by the start-up of the first trains at both Cameron and Prelude, with both being reported in the last week. Also, exports from Corpus Christi T2 and Freeport T1 will start during Q3 19, adding some volumes to the summer balances and then becoming far more consistent over the coming winter. While summer and winter gas prices look weak, the march of FIDs continues with the Mozambique LNG and Russia’s Arctic LNG 2 projects both expected to proceed to construction before the end of the year.
An unexpected rally on Friday at the TTF due to weaker pipeline supply w/w, combined with a drop off on the Henry Hub, reopened the Aug-19 contract arbitrage windows between Henry Hub and the other global hubs. With the arbitrage windows open again, and only another nine calendar days for lifters to decide whether to cancel a US cargo in August, the global market appears to have enough space to accept the US cargoes. The JKM-TTF spread, so important for determining which way those US volumes might go, is intriguingly still pushing US cargoes to Asia for the peak summer contracts, but has fallen to levels that would push US cargoes to Europe in Oct-19 and Nov-19. The cross-basin spreads are below 40 cents over both of those months. This compares with spreads up around 1 $/mmbtu for the following peak winter months. Given the autumn shoulder months tend to be a key time for NE Asian restocking, and there is contango in the curve that will again support the use of floating storage for the region, those spreads look far weaker than we expect them to be.
The march of new supply accelerated last week with first exports reported from both the 4.0 Mtpa Cameron T1 project (US) and the 3.6 Mtpa Prelude project (Australia). While both have been expected, Prelude was the bigger mystery as Shell announced that it started LNG production back at the end of 2018, but then some five months elapsed before first exports. Shell provided very little in the way of updates on the delay, but we would now expect a couple of months of commissioning before the project hits its full capacity production of 0.3 Mtpm. Cameron was also delayed from expectations at the start of the year, with exports scheduled to begin at the start of the year, then in Q1 19 and now eventually an export at the start of June.
Feedgas into the Cameron facility has been patchy, and was at zero last week, as the commissioning process continues. As with Prelude, we expect patchy exports over the next two months, and then the facility should progress to its commercial production rate of around 0.3 Mtpm. The next two scheduled start-ups are both in the US. The 4.5 Mtpa Corpus Christi T2 is still expected online in the coming weeks although pipeline scrapes suggest feedgas take into the new train has been limited, which makes first exports more likely in July than the end of June.
Cheniere was also in the headlines for taking the FID on the 4.5 Mtpa Sabine Pass T6 export project and indicating it should take an FID on expanding Corpus Christi in 2020, with a target in-service date of 2023. In addition, the company announced that it would buy natural gas from Apache Corp's Permian assets using a price mechanism linked to the LNG sales price rather than Henry Hub or a more regional hub. Given the price disparities between US and global gas prices, the attraction to producers of sharing in some of the net-back is obvious, and possibly reflects difficulties in sanctioning gas-dominated upstream investments in the current environment.
The 4.4 Mtpa Freeport T1 project is expected to be exporting come September, followed by T2 in Q4 19. Project builder McDermott reaffirmed that it expects initial LNG production from the third and final train to occur in Q1 20—a fairly accelerated timeline to bring all three of the trains online in less than three quarters, which would usually be sequenced over a year based on other projects. That accelerated program will support higher LNG exports from Freeport over 2020.
One other train we have been expecting to start in H1 19 was the 4.2 Mtpa Ichthys T2. According to Kpler data, the Ichthys facility had one peak week of exports back in mid-April, but exports over the five following weeks indicate the facility is only exporting from one train. Almost from the start, there have been weeks when Ichthys has been exporting above the nameplate capacity of just one train (around 0.08 Mtpw), although that is common for liquefaction facilities. One interpretation would be that both trains started together, but one is not running at capacity. Since the start of the year, the facility has exported 2.6 Mt of LNG, suggesting an annualised rate of 5.7 Mtpa, higher than nameplate but not conclusive evidence that both trains are running.
More Russian LNG and Mozambique moves forward
The 19.8 Mtpa Arctic LNG 2, which is led by Novatek, is also getting traction of late. A few weeks ago, it emerged the company had sold 20% of the project’s equity to Chinese buyers, CNPC and CNOOC. Saudi Aramco then reportedly abandoned its discussions with Novatek as it wanted more than the 10% share that was left of what Novatek wanted to sell. This week, however, it was announced that Aramco submitted an offer to the project, that is now being considered by Novatek. This project now looks likely to FID in the coming months.
Meanwhile, the 18 June FID deadline set by Anadarko for the 12.9 Mtpa Mozambique project is also fast approaching. While that deadline has been put in some doubt by the pending transfer of Anadarko’s assets to Total, Anadarko’s announcement that it signed an EPC contract with a JV consisting of Saipem, McDermott and Chiyoda for the Mozambique LNG project, suggests that the FID could still be taken on 18 June. If both of these projects take an FID in the coming months, that would bring the LNG supply capacity sanctioned this year to 63 Mtpa, and another 33 Mtpa is still likely to come from the Qatar expansion.
|Fig 1: Cameron LNG use of feedgas, bcf/d||Fig 2: FIDs expected in 2019|
|Source: Ventyx, Energy Aspects||Source: Company websites, Energy Aspects|