Aug 2020

Trend of Natural Gas and LNG Prices

Short-term trend

  • The assessed spot LNG price for Northeast Asia (JKM) for delivery in September 2020 soared from the middle of USD 2s per million Btu in the middle of July to USD 3.88 on 14 August. JKM for delivery in October went up to USD4.17 on 17 August, the first day as the front-month trading, surpassing the USD 4 mark for the first time since 24 January and it was at USD 3.85 as of August 26. Although the prospects for global economic recovery due to COVID-19 are still unclear, JKM have increased due to increased demand for electricity during the summer and supply-side issues such as extended maintenance at Gorgon LNG. The average spot LNG price published by METI was USD 4.1 for July delivery (USD 0.3 higher than July 2020).
  • The Henry Hub price for delivery in next month was at USD 2.51 as of 24 August 2020, staying above USD 2 since early August. It had been below USD 2 since 20 January except for USD 2.13 on 2 May. It fell to as low as USD 1.48 on 26 June, the lowest during the past decade, as in addition to lower-than-expected LNG export volumes with the cancellation of cargoes, the increasing number of new cases of COVID-19 resulted in concern over restarting business activities. Afterward, HH has recovered to above USD 2 due to relatively modest natural gas production, an increase of electric power demand for summer, and LNG exports. Meanwhile, the TTF price for delivery in the next month was at USD 2.95 as of 24 August. It briefly surpassed USD 2 in June as the European region also began to ease its lockdown, but it had fallen since the middle of July and stood at about USD 1.7 as of the end of July 2020. However, it has also recovered to above USD 2 since early August as increasing electricity demand with hot weather. The increase of prices has also something to do with reduced LNG flow from the United States and reduced pipeline gas exports from Norway, with planned maintenance. Meanwhile, underground storage levels were already close to 90%, which, together with the uncertain demand outlook, continued to suppress future price increases.
  • Japan's average LNG import price of USD 7.27 in July 2020 was 3.53 times as high as JKM for delivery in July 2020 (assessed between mid-May 2020 and mid-June 2020) at USD 2.06. The gap was smaller than 3.98 in June, but still significantly different. The average landed prices of LNG to Japan from the ASEAN, the Middle East, and Russia in July were USD 6.13, USD 6.71, and USD 7.05 respectively, to undercut the overall average of USD 7.27. On the other hand, the average landed price of LNG to Japan from the United States during the month was USD 9.29, higher than the overall average for second months in a row. As most of the long-term contract prices to buy LNG in Japan are linked to oil prices except for LNG from the United States, the collapse of international crude oil prices has affected long-term contract LNG prices. Reflecting on the downward trend of crude oil prices, the average landed LNG price fell to the low of USD 7 range for the first time since January 2017. Meanwhile, Japan imported 6.036 million tonnes of LNG in July 2020, 11.5% lower than one year ago. The July figure was the lowest in ten years for the month.

LNG and Spot Gas Prices, 2019-2020

Mid- to long-term trend

  • Japan's average LNG import price has fallen over the last decade from a peak in the USD 18 range in 2012 to USD 7.27 in July 2020, largely due to the downward trend in crude oil prices, to which long-term contract LNG prices are pegged. Except in August 2019, when it rose to USD 10.13, the average price has since April 2019 largely stayed below USD 10. With the collapse of crude oil prices after March 2020, Japan's average LNG import price is expected to further go down, especially from July. Since the impact of the fall in crude oil prices since March 2020 will be reflected in be reflected in Japan's average LNG import price after a time lag of about three months, Japan's average LNG import price fell to the USD 7 level in July, and may fall further in August and September, but from October onwards the Japan's average LNG import price is expected to pick up slightly, reflecting the crude oil price from July onwards.
  • After JKM for delivery from November 2019 to January 2020 briefly stayed at around USD 6, JKM declined dramatically to below USD 2 in late April for June 2020 delivery. This is a remarkable decline to a historically low level. JKM, which in recent years moved in the range between European spot gas prices at the lower end and crude oil equivalent at the higher end, have stayed near the lower end since 2019.
  • Japan's average LNG import price for May-July 2020 was significantly higher than the JKM price. This has been the trend for Japan since the Great East Japan Earthquake in 2011. The most recent reason for such price difference is massive LNG supply especially from the US, and a weaker appetite for LNG by Japan, Korea, and other Asian markets, due to COVID-19 spread. The time lag between crude oil price fluctuation and its reflection in contracted LNG prices have also played a role. Combined LNG imports by Japan, Korea, and Chinese Taipei during the first seven months of 2020 decreased year-on-year by 1.8%, or 1.41 million tonnes, and were smaller by 9.6%, or 8.07 million tonnes than those during the same months in 2018 and remain weak.

LNG and Spot Gas Prices, 2010-2020

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(source)
Henry Hub price: NYMEX Futures and Options, CME Group
NBP price: ICE Futures Europe, Intercontinental Exchange
TTF price: ICE Futures Europe, Intercontinental Exchange
JKM: LNG Japan/Korea Marker© 2020 by S&P Global Platts, a division of S&P Global Inc.
METI spot price: Spot LNG Price Statistics, Ministry of Economy, Trade and Industry
Japan’s average LNG import price: Trade Statistics of Japan

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Trend of Natural Gas and LNG Inventories

Japan

  • Japan's LNG inventory as of the end of April 2020 stood at 4.74 million tonnes, an increase of 0.2% from the preceding month, and an increase of 13.7% from one year earlier. It was 0.65 million tonnes higher than the last five-year average and was the highest in April since the start of statistics in 2008. LNG consumption for city-gas stood at 2.27 million tonnes, decreasing by 21.6% month-on-month in April 2020, and almost same as 2.26 million tonnes received by city-gas companies. As a result, the LNG inventory for city-gas supply in the month was 2.23 million tonnes, 3.2% lower than March 2020, and 8.0% higher than April 2019. The LNG inventory for power generation fuel in April 2020 was 2.51 million tonnes, increasing by 3.3% from March 2020 and 19.2% higher than April 2019, as gas-fired power generation output by incumbent electric power companies decreased by 22.6% month-on-month in April 2020. The national emergency declaration in Japan was issued on 7 April, which significantly reduced city-gas demand and LNG demand for power generation due to factory closures and store closures. LNG received for both city-gas and power generation decreased about 6% year-on-year, but the amount of gas consumption declined more than that. As a result, LNG inventories increased by 13.7% year-on-year.
  • Normally Japanese city-gas demand is the lowest during the shoulder periods (spring and autumn) when there is less demand for air conditioning. Therefore, the LNG inventory is built up from April to October and is withdrawn from November to March. However, LNG inventory levels vary greatly from year to year, as Japan does not have natural gas underground storage facilities unlike the United States and Europe.

Japan end of month LNG inventory, 2019-2020

Japan end of month LNG inventory, 2010-2020

(Source)
Compiled based on data from Gas Business and Thermal Power Generation Statistics, Ministry of Economy, Trade and Industry.As the inventory data is available for the period only after January 2008, the five-year average is applicable only after January 2013.

United States

  • As of 14 August 2020, working gas in underground natural gas storage in the United States was 3,375 Bcf, a 5.0 % increase in one month, according to data from the U.S. Energy Information Administration (EIA). Gas inventories were 20.7 % or 578 Bcf higher than those at the same point in 2019 and were 442 Bcf higher than the past five-years average of 2,933 Bcf. Gas inventories were higher than the range for the past 5 years, were at the highest level since 2012 for August.
  • According to EIA's Natural Gas Weekly Update on 20 August 2020, the net injections into natural gas storage totaled 43 Bcf for the week ending on 14 August, and it was lower than the average of the past five-year (2015 - 19) net injections of 44 Bcf and last year's net injections of 56 Bcf during the same week. The average rate of injections into storage is 11% higher than the average for the past five years so far in the refill season (April through October). If the rate of injections into storage matched the average for the past five years of 10.1 Bcf/d for the remainder of the refill season, the total inventories would be 4,165 Bcf by the end of October.
  • The maximum inventory of working gas in underground natural gas storage in the United State over the past 10 years has been around 4 Tcf. However, according to the EIA database, natural gas production increased by more than 20%, natural gas consumption increased by more than 14%, and natural gas exports increased by more than 45% between 2017 and 2019 in the country, changing gas supply and demand dynamics dramatically. According to EIA, August 2019 held the record for the most natural gas consumed in the electric power sector in a single month and both electric-power-sector natural gas consumption and total natural gas consumption reached their highest-ever annual levels in 2019, hence this growing trend would generally encourage more storage capacity. In addition, increasing exports of natural gas also could create a need for additional natural gas storage capacity in the Gulf Coast region to support pipeline exports of natural gas to Mexico and LNG exports.

U.S. Natural Gas Underground Storage(Aug 2019 - Aug 2020)

U.S. Natural Gas Underground Storage, 2010-2020

(Source)
Compiled based on data from the U.S. Energy Information Administration (EIA)

Europe

  • As of 25 August 2020, the stored volume of natural gas in European underground storage facilities operated by the Aggregated Gas Storage Inventory (AGSI +) members (including European Union (EU) member companies and non-EU (Serbia and Ukraine) member companies) was 1,010 TWh. The inventories were 7.7 % higher than one month ago and 1.7 % higher than one year earlier, and 165 TWh higher than the five-year average. The stored volume on 25 August 2020 represented 91% of the working capacity, is higher than the past five-year range of 69% - 89% at the time of the year. As the inventory levels have been climbing in the other AGSI+ countries, usage of Ukraine's customs-free storage programme has been reportedly growing recently also, allowing companies to physically import gas and then re-export it up to three years later, without paying customs duties during the period of physical storage. This is apparently mitigating the pace of increase in inventories in the other AGSI+ countries.

European Natural Gas Storage, Aug 2019 - Aug 2020

European Natural Gas Storage, 2010-2020

(Source)
Compiled based on data from Gas Infrastructure Europe, Aggregated Gas Storage Inventory (AGSI). As the inventory data is available for the period only after January 2011, the five-year average is applicable only after January 2016.

Latest Developments in Major Natural Gas and LNG Projects

August Highlights

  • In the United States, following the Freeport LNG project in May 2020, all the liquefaction facilities at the Cameron LNG and Elba Island LNG projects are expected to enter into commercial operations by August, accumulating 56 million-tonne-per-year liquefaction capacity in operation from the first wave of LNG projects in the country. From late July to early August, many of the large oil and gas companies in the world reported huge impairments in their second quarter reports.

 

Asia and Oceania

  • China's natural gas production, consumption, and LNG import during the first half of 2020 increased year-on-year by 7.9%, 5.7%, and 11.7%, respectively, to 94.83 Bcm, 160.701 Bcm, and 44.025 Bcm, according to preliminary data from the National Bureau of Statistics. Pipeline gas import decreased year-on-year by 7.4% to 24.048 Bcm.
  • According to June 2020 PPAC's Snapshot of India's Oil & Gas data from the Petroleum Planning & Analysis Cell (Ministry of Petroleum & Natural Gas) released on 30 July 2020, India's natural gas consumption and production and LNG import in June, decreased year-on-year by 9.3%, 12%, and 6.9%, respectively, to 4.9 Bcm, 2.3 Bcm, and 2.7 Bcm (1.96 million tonnes). For the three months to June period, they decreased year-on-year by 14.3%, 16%, and 12.5%, respectively to 13.5 Bcm, 6.8 Bcm, and 7.0 Bcm (5.15 million tonnes).
  • The Department of Energy (DOE) of the Philippines in early August 2020 directed First Gen Corporation to complete additional requirements for its amended LNG terminal project. First Gen had revised its LNG terminal project in Batangas from an onshore facility to a floating storage and regassification unit (FSRU). The change required additional permits that First Gen needs to complete before a construction permit is issued by DOE's OIMB (Oil Industry Management Bureau), according to OIMB. About six additional permits should come from DENR (Department of Environment and Natural Resources), PPA (Philippine Ports Authority), and PCG (Philippine Coast Guard). First Gen also changed the project's timeline after the DOE urged to fast-track the project. DOE said the completion of the project would be advanced to April from August 2022.
  • JERA announced on 31 July 2020 that the company owned by Reliance Power and JERA to develop a new gas-fired power generation project in Bangladesh has signed a loan agreement for financing USD 642 million with a group of banks that includes the Japan Bank for International Cooperation (JBIC). The project is to build, own, and operate a 745 MW (net output: 718 MW) natural gas combined-cycle power project in Meghnaghat, Naranganj, located approximately 40 km southeast of Dhaka.
  • Shell Australia announced on 3 August 2020 that it would acquire 100% of Select Carbon, a specialist company that was engaged in carbon farming projects throughout Australia. Shell said that the acquisition was the globally first for its Nature-Based Solutions business.
  • Woodside announced on 17 August 2020 that the North West Shelf (NWS) project participants had agreed non-binding key principles for processing third-party gas through the NWS facilities with Woodside, in respect of gas from the Pluto fields, and with Mitsui E&P Australia and Beach Energy, in respect of the Waitsia Gas Project Stage 2. Gas produced from the Pluto fields is planned to be transported to the NWS facilities through the proposed Pluto-KGP Interconnector, which is targeting ready for start-up (RFSU) in 2022. The agreement with Mitsui E&P and Beach Energy contemplates the tolling of gas related to the onshore Waitsia Gas Project Stage 2 from 2023.
  • During the half-year 2020 results reporting on 13 August, Woodside confirmed deferral of the targeted FIDs (final investment decisions) for Scarborough and Pluto Train 2 from 2020 to H2 2021, as well as the one for Browse to 2023 or later. Woodside added that the company and BHP had agreed to extend the validity of the tolling price for processing gas from the Scarborough offshore field at Pluto LNG, originally agreed in November 2019, until the end of 2020. Woodside added that it was reviewing potential increase of upstream processing capacity for Scarborough.

 

North America

  • According to August 2020 version of LNG Monthly Report from DOE (Department of Energy, United States), the country exported 25.40 million tonnes and 2.27 million tonnes of LNG, during the first half and the month of June 2020, increasing by 58% and decreasing by 23% year-on-year, respectively. Eight cargoes were exported in June from the Sabine Pass facility which had been the largest exporting site since the country's first LNG export in the country in 2016, while twelve cargoes or 0.78 million tonnes were shipped out from Cameron LNG taking over the top spot for the first time.
  • According to the August 2020 SHORT-TERM ENERGY OUTLOOK, EIA estimates that U.S. LNG exports will average 5.5 Bcf/d (42.19 million tonnes) in 2020 and will average 7.3 Bcf/d (55.31 million tonnes) in 2021. According to the preliminary data in the latest STEO, U.S. exports of LNG in July 2020 averaged 3.1 Bcf/d (2 million t0nnes), which is about the same as in May 2018, when the available liquefaction capacity was about one-third of the current capacity. The preliminary figure for July and August of 3.1 Bcf/d is up from 2.2 Bcf/d estimated in July's STEO. EIA estimates about 45 cargoes have been cancelled for upcoming August shipments and about 30 cargoes have been cancelled for September shipments
  • DOE issued a final policy statement on 29 July 2020 that allows for LNG exports to non-free trade agreement (non-FTA) countries to be extended through the year 2050. This policy is a change from the current practice of granting 20-year export terms. DOE originally proposed the 2050 term extension in a proposed policy statement that was issued for public notice and comment in February 2020. The final policy statement allows existing non-FTA authorization holders to apply to extend their export term through 2050 and also allows existing applicants to amend their pending non-FTA applications to request an export term through 2050.
  • Cheniere Energy said on 6 August 2020 that it recognized USD 708 million and USD 761 million, respectively, in revenues associated with LNG cargoes for which customers have notified the company that they will not take delivery, during the three- and six-month period ending in June. Based on those figures, as many as 67 cargoes may have been cancelled during the second quarter alone. Corpus Christi Train 3 and Sabine Pass Train 6 are expected to be substantially completed in 1H 2021 and 2H 2022, respectively, which is earlier than the previous estimate.
  • Sempra LNG announced on 10 August 2020 that the Cameron LNG export facility in Hackberry, Louisiana, has begun full commercial operations under Cameron LNG's tolling agreements. Cameron LNG achieved commercial operations of Train 1 and Train 2 in August 2019 and February 2020, respectively. Commercial operations of Train 3 mark the beginning of full run-rate earnings under Cameron LNG's tolling agreements. Cameron LNG is jointly owned by affiliates of Sempra LNG, TOTAL SE, Mitsui & Co., Ltd., and Japan LNG Investment, LLC, a company jointly owned by Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha. Sempra Energy indirectly owns 50.2% of Cameron LNG. Sempra LNG and its partners are developing Cameron LNG Phase 2, previously authorized by the Federal Energy Regulatory Commission (FERC). Project owners have signed memorandums of understanding (MOU) for 100% of Phase 2's offtake capacity with no change in equity ownership.
  • Freeport LNG asked FERC (Federal Energy Regulatory Commission) on 27 July 2020 to extend time to complete construction on their proposed Train 4 facility to May 2026. Freeport said it would need to rebid the EPC contract for Train 4 as KBR exited the project.
  • The FERC on 27 July and 10 August 2020 approved the request to place Elba Island LNG's two units into service, respectively. The project requested on 20 August authorization from FERC to place the last unit in-service on 27 August.
  • According to Sempra Energy's 10-Q report on 5 August 2020, when the Port Arthur EPC contract was executed in February, the price was estimated to be approximately USD 8.9 billion, depending on the timing of a full notice to proceed, which if not issued by 15 October would require renegotiation of the EPC contract. Given expected delays, Sempra is in discussions with Bechtel regarding changes to the project schedule and the EPC contract price.
  • Tellurian revealed on 13 August 2020 that it had achieved cost reductions of 30% in its phase 1 planning for the Driftwood LNG project, down to ~USD 1,000  per tonne including upstream, pipeline and liquefaction, enabling <USD 3.50 per million Btu projected LNG FOB U.S. Gulf Coast, by achieving optimization in Driftwood Pipeline, owner's costs and deferring PGAP/HGAP (Permian Global and Haynesville Global Access Pipelines).
  • Tokyo Gas announced on 29 July 2020 that in connection with the acquisition of additional oil and gas assets in Louisiana, Tokyo Gas America will take majority interest in Castleton Resources. Tokyo Gas America will increase its ownership interest in CR from 46% to approximately 70%. Castleton Resources will change its name to "TG Natural Resources LLC" by March 2021. As a result of the acquisition, the production volume of gas and natural gas liquid (NGL) held by CR will increase by approximately 1.6 times from approximately 296 million cubic feet per day (8 million m3 per day, gas equivalent) to 473 million cubic feet per day (13 million m3 per day, gas equivalent).
  • Sempra Energy said on 5 August 2020 that it continues to work closely with the highest levels of the Mexican government on obtaining a 20-year export permit for Phase 1 of the proposed Energía Costa Azul (ECA) LNG liquefaction-export infrastructure project under development in Baja California, Mexico. Phase 1 of the proposed project, developed by Sempra LNG and Infraestructura Energética Nova, S.A.B. de C.V. (IEnova), is planned to be a single-train LNG export facility with an initial offtake capacity of approximately 2.5 million tonnes per year. According to Sempra's 10-Q report, the total price of the EPC contract for ECA LNG JV Phase 1 is estimated at approximately USD 1.5 billion, which TechnipFMC has agreed to uphold until 1 September, at which time the EPC contract, including the price, may be subject to renegotiation. In April, ECA LNG JV executed 20-year LNG sale and purchase agreements with Mitsui & Co. and TOTAL for approximately 0.8 million tonnes per year of LNG and 1.7 million tonnes per year of LNG, respectively. A final investment decision for ECA LNG JV Phase 1 is contingent on the receipt of an export permit from the Mexican government. Operations at certain relevant regulatory agencies in Mexico remain limited due to the COVID-19 pandemic, which has added to the uncertainty of the timing of the receipt of this permit and is contributing to a delay of the final investment decision.

 

Europe and Russia

  • Naturgy said on 22 July 2020 that it had agreed with natural gas suppliers to terminate various long-term supply contracts early for an annual volume of approximately 20 TWh (1.323 million tonnes). The company said it aims to continue reaching agreements with other suppliers on amending contractual volume and/or price conditions in the second half of the year.
  • Hill International announced on 31 July 2020 that it was selected by the Natural Gas Infrastructure Company of Cyprus (ETYFA) to lead an international consortium and provide owner's engineer services in connection with the Cyprus Liquefied Natural Gas (LNG) Import Terminal Project at Vasilikos Bay. The project's main components include: a former LNG carrier with a storage capacity of 136,000 cubic meters that will be converted to a floating storage and regasification unit (FSRU) in China; construction of a jetty and a jetty-borne gas pipeline; construction of an onshore gas pipeline and associated infrastructure.
  • China's Hudong-Zhonghua Shipbuilding held a keel laying ceremony on 12 August 2020 for the second LNG bunkering vessel owned by MOL and chartered by Total. The vessel will have 18,600 m3 storage capacity and will be 135 meters long, the same as the first ship. The Gas Agilty departed Hudong's Jiangnan yard in May and it is expected to reach Rotterdam on 23 August. In Rotterdam, it will be supplying the fuel to CMA CGM's nine containerships but also other vessels in the Northern Europe area. When delivered in the second half of 2021, the LNG bunkering ship will be stationed in the Marseille-Fos area in France. This vessel will supply LNG in the Mediterranean area to a wide range of vessels, including six containerships CMA CGM chartered from Eastern Pacific Shipping.

 

Other regions

  • Air Products announced on 4 August 2020 that it had been selected to provide its proprietary AP-X® Natural Gas Liquefaction Process technology and equipment to Qatargas for the first phase of the expansion project (North Field East, pre-FID).

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