Shipping data shows, the ‘SK Resolute’ carrier left the Sempra-operated Cameron LNG plant in Louisiana on March 22 and is expected to arrive in Tianjin on April 29.
The 180,000 cubic metres capacity carrier was originally headed for Cristobal, the port on the Panama Canal though changed its destination to Tianjin in China on March 28. If the ‘SK Resolute’ discharges its cargo in China at the end of April it would be the first to be unloaded since March 2019 when China raised tariffs on LNG imports from the US to 25 percent as part of the trade war.
Record storage injections
In the U.S., meanwhile, gas storage is expected to ramp up to a record 4.078 trillion cubic feet (tcf) at the end of the summer (April-October) injection season, analysts said in a Reuters poll, as the pandemic is slashing domestic demand from industries and power generators before producers can shut in rigs to reduce output.
The slump in demand occurs at a time when gas use for heating is pattering out as the spring and summer season approaches. Mild winter weather had already lead to smaller gas withdrawals from storage for heating and power generation. From mid-March, government restrictions on travel and manufacturing to contain the coronavirus brought fuel demand into freefall. Low domestic gas use, combined with reduced demand from Europe, will lead to a further decline in U.S. gas prices.
Most of the excess gas production will end up in storage. Net injections during the refill season (April 1–October 31) will bring the total working gas in storage to 4,029 Bcf, the U.S. Energy Information Administration’s (EIA) forecast. If realized, would be the largest monthly inventory level on record.
However, storage capacity is limited after investments dried up in recent years to expand it. The gas price differential, or spread, between the winter and summer has been structurally shrinking in recent, decreasing from more than $0.50 per million British thermal units (MMBtu) within the last ten years to less than $0.20/MMBtu for much of 2018.
“This narrower difference has reduced the economic incentive to invest capital expenditures in increasing gas storage infrastructure,” analysts at the U.S. Energy Information Administration (EIA) commented. These days, new-build gas storage is missing as an outlet to balance the oversupplied market.
Shut-ins become ‘more real’
US LNG exporters – who last year turned largely to Europe to in search of buyers – would likely be compelled to rein in their output this year, even as new projects continue to come online. Prior to the coronavirus outbreak, Wood Mackenzie was expecting US LNG producers to curb their output by 0.5bcf/day – or roughly 14 Mcm/day. By comparison, the US averaged gross LNG exports of almost 5bcf/day last year and the EIA expected an average of 6.4 Bcf/day this year.
“Half a Bcf per day of shut-ins, which is what we are modelling, probably won’t really move the needle for the LNG market – it will have to be relatively substantial,” said WoodMac’s Asian gas and LNG research director Robert Sims.