Trend of Natural Gas and LNG Prices

Short-term trend

• The assessed spot LNG price for delivery to northeast Asia, JKM, in November 2020 recovered to USD 5 per million in late September and continued rising to USD 7.38 as of 23 October for delivery in December, which was the highest level since January 2019.
• As the LNG supply is subdued by the extended maintenance at Gorgon LNG, delayed restart of Prelude FLNG which will not resume shipment by the end of the year and reduction of LNG production in the United States partly because of hurricanes and low operational rates, it offset the demand shock from the COVID-19 and helped the JKM price remain at a relatively high level.
• Although the prospect for global economic recovery from the COVID-19 pandemic is still uncertain, it is expected that Asian consumers will likely purchase more spot LNG cargos to meet the growing demand for upcoming winter, which is likely to be colder than the previous winter because of La Niña. However, India and China might cut the purchases of spot LNG cargoes as India is price-sensitive and China could always turn to gas pipeline imports if the JKM price is higher. This would be alleviated as some suspended or reduced LNG production in the United States starts to ramp up. As the utilisation rate of US LNG liquefaction increases, the rise in price may slow down. The average spot LNG price published by METI was USD 3.4 for September delivery (USD 1.2 higher than August 2020).
• The Henry Hub price for delivery in the following month was at USD 3.02 as of 27 October 2020. The price rose above USD 2 in early August and remained at that level except for the brief dropping to USD 1.8 because of the shutdown of some liquefaction facilities in mid-September. The price climbed back in October hovering at levels above USD 2.5 and above USD 3 towards the end of the month. The increase in the price level was contributed by the domestic heating demand in winter and modest natural gas production, as well as the resumed production at Cameron LNG which had shutdowns due to hurricanes and Cove Point LNG after regular maintenance. As it is expected that the winter 2020/2021 is going to be colder than the previous one, the HH price will continue to remain at a stable level in winter.
• Meanwhile, the TTF price for delivery in the following month was at USD 5.15 as of 27 October. It recovered to above USD 2 since early August, further to USD 3 in late August and USD 4 in early September. The rise of the price was partly contributed by two events in Norway. The shutdown at Hammerfest LNG production facility caused by a fire and production suspension from six oil and gas fields since 5 October because of a strike. The strike ended on 9 October after a wage agreement. The TTF price is expected to increase as there will be more heating demand in winter. However, the overall demand outlook is still uncertain as the regions are facing the second wave of COVID-19.
• Based on preliminary figures from Japan's customs statistics from the Ministry of Finance, the country's average LNG import price was USD 5.51 in September 2020. The average landed prices of LNG in Japan from ASEAN, the Middle East, and Russia in September were USD 4.88, USD 5.11, and USD 5.48 respectively, which were all below the overall average of USD 5.51. On the other hand, the average landed price of LNG in Japan from the United States in the same month was USD 8.08, much higher than the overall average import price of USD 5.51.
• The average price of USD 5.51 was 1.9 times as high as the JKM price of USD 2.90 for delivery in September 2020 (assessed between mid-July 2020 and mid-August 2020). The gap was smaller compared to 2.75 in August but still wide.
• As most of the long-term LNG contract prices in Japan are linked to oil prices except for the LNG from the United States, the collapse of international crude oil prices also affected long-term LNG contract prices. Reflecting on the downward trend of crude oil prices, the average landed LNG price in September was under USD 6 for two months in a row. The average price for October is expected to slightly increase. Meanwhile, Japan imported 6.504 million tonnes of LNG in September 2020, 1.0% higher than the previous year.

Mid- to long-term trend

• Japan's average LNG import price peaked at USD 18 in 2012 and fell to USD 5.51 in September 2020, the lowest since January 2005. This was largely due to the downward trend in crude oil prices, to which the long-term contract LNG prices are pegged.
• As the impact of the fall in crude oil prices in March 2020 was reflected in Japan's average LNG import price after a time lag of around three months, Japan's average LNG import price fell to under USD 6 in August and September. From October onwards, Japan's average LNG import price is expected to pick up slightly, reflecting the rise in crude oil prices from July onwards.
• The JKM price for delivery between November 2019 and January 2020 briefly stayed at around USD 6 and declined dramatically to below USD 2 in late April for delivery in June 2020. This is a remarkable decline to a historically low level. In recent years, the JKM price was within the range between the lower end of European spot gas prices and the higher end of crude oil equivalent prices. Starting from 2019, the JKM price became closer to the lower end of European spot prices. In August 2020, the JKM price soared along with the European gas prices.
• Japan's average LNG import price was significantly higher than the JKM price. The trend has been further magnified recently as there is more LNG supply in the market, especially from the United States, and a weaker appetite for LNG by Japan, Korea, and other Asian markets because of the widespread of COVID-19. The price gap has decreased by falling Japan’s average LNG import price reflecting lower oil prices and the JKM price is expected to rise. The combined LNG imports by Japan, Korea, and Chinese Taipei in the first nine months of 2020 decreased year-on-year by 2.6%, or 2.54 million tonnes, and were less by 9.7%, or 10.42 million tonnes than those during the same period in 2018. Any significant rise in LNG imports is not expected because of the slow economic recovery. In September 2020, China imported 5.73 million tonnes of LNG, an increase of 13.3% year-on-year. The accumulated imports reached 47.90 million tonnes for the first nine months of 2020, up by 10.6% from the previous year.

Trend of Natural Gas and LNG Inventories

Japan

• Japan's LNG inventories as of the end of June 2020 stood at 4.90 million tonnes, a decrease of 3.8% from the preceding month, and an increase of 19.4% from one year earlier. It was 0.82 million tonnes higher than the average in the past five years and was the highest in June since the start of statistics in 2008.
• The LNG inventories for city-gas supply of the month was 2.18 million tonnes, 5.9% lower than May 2020, and 5.8% higher than June 2019. LNG consumption for city-gas stood at 2.16 million tonnes, decreasing by 4.6% year-on-year in June 2020. City-gas companies received 2.02 million tonnes of LNG in June, which is a decline year-on-year of 2.1%. City gas companies’ LNG consumption and receipts were closer to the level of the previous year compared to May. The LNG inventories declined in June as the consumption was more than the receipts. However, the LNG inventories are still at a high level because of the long-lasting downturn in city-gas demand for commercial and industrial sectors.  
• The LNG inventories for power generation in June 2020 were 2.73 million tonnes, decreasing by 2.0% from May 2020 and 33.1% higher than June 2019. As gas-fired power generation output decreased by 4.6% year-on-year in June 2020 and LNG receipts of power generation increased, the LNG inventories for power generation increased.
• According to the Japan Meteorological Agency's seasonal forecast in October, the La Niña phenomenon will likely continue. The average temperature between December and February is expected to be at the same level or lower than previous years in the regions south of Tohoku. The LNG inventories were at a high-level in winter one year ago as a result of a mild winter nationwide and sluggish consumption of city-gas and power generation. However, the inventories could be lower than last winter’s as the LNG consumption increases if the forecast remains the same.

United States

• As of 16 October 2020, working gas in underground natural gas storage in the United States was 3,926 Bcf, a 6.7 % increase from the previous month, according to the U.S. Energy Information Administration (EIA). Gas inventories were 8.9% or 320 Bcf higher than those at the same time in 2019 and were 327 Bcf higher than the past five-year average of 3,599 Bcf. Inventories were above the five-year range and were the highest for October in a decade.
• According to the Short-Term Energy Outlook monthly released by the EIA in October 2020, EIA estimated that natural gas inventories were more than 3.8 trillion cubic feet (Tcf) in September 2020, 12% more than the five-year (2015–19) average. However, as the natural gas production this winter is expected to be lower than last winter, EIA forecasts the inventory withdrawals will outpace the five-year average during the heating season with inventories ending March 2021 at 1.7 Tcf, 6% lower than the 2016–20 average.
• The maximum inventory of working gas in underground natural gas storage in the United State over the past 10 years was around 4 Tcf. However, according to the EIA database, natural gas production increased by more than 20%, consumption increased by more than 14% and 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 power-sector natural gas consumption and total natural gas consumption reached their highest-ever annual levels in 2019. This growing trend would generally encourage more storage capacity. In addition, more natural gas storage capacity in the Gulf Coast region may be needed as pipeline exports to Mexico and LNG exports continue growing.

Europe

• As of 21 October 2020, the stored volume of natural gas in European underground storage facilities operated by the Aggregated Gas Storage Inventory (AGSI +) member companies of the European Union (EU) was 1,055 TWh. The inventories were 0.8 % up from the previous month and 2.4 % lower year-on-year, and 88 TWh higher than the five-year average. Following on from September, the inventory level in October was also lower than the same period last year. On 21 October 2020, the working gas volume in storage was 95% full, which was within the range of 84% - 97% in the same period over the past five years.
• The inventory levels in the high gas demand period starting from November will be affected by two factors. The first is winter temperatures. Last year, the warm winter in Europe and Asia led to an oversupply of natural gas, consequently, the gas inventories could not be stored. This year, the winter in Japan is likely to be colder than last year because of the La Niña phenomenon which will increase the heating demand. Meanwhile, the LNG imports are expected to decline in Korea as there will be more nuclear power plants available. The other factor is the impact of COVID-19. If the economic recovery is hit by the second wave, the gas demand will continue being dampened, keeping the storage capacity utilisation rate above 50% as high as it was in spring 2020.

Latest Developments in Major Natural Gas and LNG Projects

October Highlights

• Although no new final investment decisions have been announced for LNG liquefaction facilities so far this year (2020), several proposed LNG production projects have expressed their plans to accommodate more environmentally-friendly elements into their project development. Qatar's energy minister revealed that the country's mega-train expansion project will incorporate a CCS system and solar power generation as part of its basic design, at the LNG Producer-Consumer Conference in October 2020.

 

Asia and Oceania

• Centrica announced on 30 September 2020 that it had agreed a binding 15-year Sales and Purchase Agreement (SPA) to supply 0.5 million tonnes per year of LNG to Shenergy. Deliveries are expected to commence in 2024. The SPA follows a Heads of Agreement (HOA) that was concluded in January 2020 and represents the first long term supply contract for Centrica in China.
• PipeChina (National Petroleum and Natural Gas Pipeline Network Group) published on 10 October 2020 available capacity and prices for third parties to access its network of pipelines and LNG facilities. PipeChina is offering regasification capacity at six LNG terminals in November and December 2020: Beihai, Tianjin, Shenzhen, Fangchenggang, Yuedong, Hainan Yangpu, offering in total 689,000 tonnes in November and 568,000 tonnes in December.
• First Gen Corporation's subsidiary FGEN LNG Corporation secured the approval of the Department of Energy (DoE) to build an interim offshore LNG terminal in Batangas City, Batangas province, the company said on 25 September 2020. The company received the permit to construct, expand, rehabilitate and modify (PCERM) dated 23 September. FGEN LNG engaged Australia's McConnell Dowell as its engineering, procurement and construction (EPC) contractor for the interim terminal project. On 6 October 2020, Tokyo Gas signed a Joint Cooperation Agreement (JCA) with First Gen Corporation. The two companies will develop a floating storage and regasification unit (FSRU) project, with the aim of introducing LNG to the Philippines as early as in the second half of 2022.
• New Fortress Energy announced on 15 October 2020 that it had signed a Memorandum of Understanding (MOU) with the Philippine National Oil Company (PNOC) to develop power and LNG infrastructure into the Philippine.
• Pavilion Energy and Gasum announced the signing of a memorandum of understanding (MOU) to develop a global LNG bunker supply network for their customers in Singapore and Northern Europe, including Amsterdam, Rotterdam and Antwerp.
• Godell Gas International (GGI) revealed on 14 October 2020 that it had signed two LNG supply agreements with Petronas Dagangan Bhd (PDB). In the first agreement, Petronas will supply LNG to GGI via the Regasification Terminal in Pengerang, Johor. GGI will deliver the LNG to customers throughout Malaysia via a virtual pipeline system (VPS) to storage and vaporiser facilities financed, built and operated by GGI at respective customers’s business premises. The second agreement will see GGI being Petronas' bunkering trade partner. The LNG will be distributed to LNG-fuelled vessels in Malaysian waters via ship-to-ship (STS) bunkering. GGI plans to build, own and operate the first Malaysian flag 12,000 cubic metre LNG bunker vessel, the first of three series is expected to be delivered in the second half of 2022.
• Rolls-Royce said on 6 October 2020 that it had signed a contract with Dhamra LNG Terminal (DLTPL) of India for delivery of a 29 MW gas-based power plant for an LNG terminal on the eastern coast of Odisha in India. DLTPL is a joint venture between Adani and Total. When commissioned at the end of 2021, the Dhamra LNG Terminal will be the second LNG terminal in India that is powered by Rolls-Royce Bergen medium speed engines.
• Warrego Energy announced on 28 September 2020 that it had signed a binding Gas Sales Agreement (GSA) with Alcoa, for the long-term supply of a total of 155 petajoules (PJ) (2.85 million tonnes) of natural gas from the West Erregulla gas field. The GSA will commence on 1 January 2024, subject to a positive project Final Investment Decision (FID) by Warrego expected in 1H 2021.
• Shell revealed on 15 October 2020 that it did not expect full production to resume before year-end from its Prelude FLNG facility.

 

North America

• Blackstone announced on 24 September 2020 that private equity funds managed by Blackstone Energy Partners have closed the sale of their approximately 42% stake in Cheniere Energy Partners, L.P. to Brookfield Infrastructure and funds managed by Blackstone Infrastructure Partners. In 2012 Blackstone Energy Partners and its affiliates invested USD 1.5 billion in Cheniere Energy Partners to build the first two liquefaction trains at the Sabine Pass LNG facility in Louisiana.
• Cameron LNG announced on 12 October 2020 that it had sustained no damage from Hurricane Delta.
• NextDecade Corporation announced on 6 October 2020 that the company had developed proprietary processes using proven technology to reduce carbon dioxide equivalent (CO2e) emissions at its proposed Rio Grande LNG facility by approximately 90%. NextDecade further said that it was also exploring options to address the remaining emissions to enable the project to achieve carbon-neutrality. NextDecade continues to work on the remaining commercial agreements needed to achieve a final investment decision in 2021.
• Delfin Midstream announced on 11 October 2020 the completion of FEED for the Newbuild FLNG Vessel of 3.5 million tonnes per year capacity for the Delfin LNG Project in cooperation with Samsung Heavy Industries and Black & Veatch. The company said it could execute the project for a total capital cost of around USD 550 /tonne per year. The company also said the Delfin Newbuild FLNG Vessel design uses the latest gas turbine technology, optimizations of the Black & Veatch's patented PRICO® liquefaction technology, direct air cooling and waste-heat recovery to achieve maximum fuel efficiency and minimal GHG)emissions. Each vessel will be equipped with two offloading facilities to service both large, ocean-going carriers as well as the regional demand for LNG bunkering and small-scale carriers. With ultimately four FLNG vessels in operation, the project will have 4 berths for 13 million tonnes per year.
• Chevron announced on 5 October 2020 that its acquisition of Noble Energy had been completed following approval by Noble Energy shareholders.
• Pieridae Energy announced on 29 September 2020 that it had signed a services agreement with Bechtel related to Pieridae's 2-Train Goldboro LNG Facility. Bechtel is scheduled to conduct a detailed review of the scope and design of the Goldboro LNG Facility and develop a comprehensive engineering, procurement, construction and commissioning ("EPCC") execution plan by March 2021, deliver a final lump sum, turnkey EPCC contract price proposal by May 2021, and conduct a meaningful engagement with the Nova Scotia Mi'kmaq First Nations including their participation in the construction of a large-scale work camp at the LNG site.

 

Europe and Russia

• National Grid's Grain LNG and Qatar Terminal Limited (QTL), a subsidiary of Qatar Petroleum, on 13 October 2020 announced a 25-year agreement that will provide the Qatari company with storage and redelivery capacity at Grain LNG from the middle of 2025. The agreement marks the conclusion of Grain LNG's competitive "Open Season" process, kicked off in November 2019.
• The C4T Europe company opened on 1 October 2020 a new LNG-CNG supply point in Calais, France, near the Port of Calais and the Eurotunnel. It is a mobile station designed and manufactured by HAM Group. The mobile unit will be located at this point until the construction of the fixed gas station.
• Wärtsilä announced on 8 October 2020 that it had been awarded a contract to construct a plant to liquefy gas from the grid to produce carbon-neutral LNG. It will have a capacity of approximately 100,000 tonnes per year and is located in Cologne, Germany. The feedstock for bioLNG is based on biological waste material e.g. liquid manure and food waste. The feedstock is fed to an anaerobic digestion reactor that produces biogas, which is then upgraded to biomethane and injected into the natural gas grid. The plant is expected to be operational by autumn 2022.
• According to information from Equinor, at approximately 15:30 on 28 September 2020, the company was notified about a fire in a turbine at Hammerfest LNG at Melkøya. No personnel was reported injured or missing. Hammerfest LNG was shut down in accordance with emergency routines. At 21:31 the company said there were no longer visible flames. The LNG plant is expected to resume output on 1 January 2021, the company said in a regulatory statement on 12 October 2020.

 

Other regions

• Baker Hughes announced on 29 September 2020 an order with Qatar Petroleum (QP) to supply multiple main refrigerant compressors (MRCs) for QP's North Field East (NFE) project, executed by Qatargas. The total award is part of four LNG "mega trains," representing 33 million tonnes per year of capacity. Each MRC train will consist of three Frame 9E DLN Ultra Low NOx gas turbines and six centrifugal compressors across four LNG "mega trains" for a total scope of supply of 12 gas turbines to drive 24 centrifugal compressors.
• bp announced on 12 October 2020 that it had started production from the Ghazeer field in Oman ahead of schedule. It also said that flaring reduction techniques had helped to drive down emissions during well testing.
• Golar LNG Limited announced on 1 October 2020 that Gimi MS Corporation, a subsidiary of Golar, had confirmed a revised project schedule with BP Mauritania Investments Limited for the Greater Tortue Ahmeyim project. The revised project schedule will result in the target connection date for the converted floating LNG vessel Gimi, previously scheduled for 2022, being extended by 11 months.
• DNG Energy announced on 12 October 2020 that it had received final authorisation from the Transnet National Port Authority (TNPA) to begin LNG bunkering operations in the Port of Coega, in the Eastern Cape, South Africa. DNG Energy is authorised to have its terminal, the floating storage unit (FSU) in Algoa Bay, as early as 2021.
• Golar LNG Limited announced on 12 October 2020 that Hygo and Norsk Hydro had mutually agreed to terminate the existing MOU between the parties dated 22 July 2020 to supply LNG to the Alunorte alumina refinery in Brazil. Hygo said it remained committed to the Barcarena Terminal and its plans would not be affected by the termination of the MOU with Hydro. Construction is expected to start shortly with the commencement of operations in the first half of 2022.