Depressed global demand for liquefied natural gas (LNG) continues to drive buyers of U.S. LNG to cancel cargoes for loadings in September, sources in the industry told Reuters on Tuesday.
Earlier this year, when demand for natural gas across the world plunged due to the pandemic, buyers began to scrap loadings of U.S. LNG, as gas in storage from Europe to Asia was abundant after a milder winter and the coronavirus that wiped out a lot of previously expected demand.
The pace of the cargo cancellations for September, however, looks to have slowed, according to Reuters’ sources who estimate that between 15 and 26 U.S. cargoes of LNG may have been cancelled.
This is nearly half the expected 45 cargoes cancelled for August, with cancellations similar to the number of U.S. LNG cargoes that were canceled for July loading. For June loading, the cancellations were fewer but still substantial—anywhere from 20 to 30.
The cargoes canceled for September loadings were mostly the result of the low prices in Europe, which has its storage capacity full, according to two of the sources who spoke to Reuters.
Historically low natural gas prices from Asia to Europe and lower demand in the pandemic have resulted in U.S. exports of LNG crashing by more than 50 percent this year, from 8.1 billion cubic feet per day (Bcf/d) in January to an expected export volume of just 3.2 Bcf/d in July, the U.S. Energy Information Administration (EIA) said last month.
Milder winter, lower demand in the pandemic, and high inventories, especially in Europe, have sent natural gas prices at the key benchmarks in Asia and Europe to record lows in recent months, making U.S. exports of LNG uneconomical. Based on the number of canceled cargoes for the coming months, the EIA expects U.S. LNG export capacity will be utilized at less than 50 percent in June, July, and August 2020.
The decline in LNG exports is dragging down domestic U.S. natural gas prices as lower shipments are threatening to aggravate the already higher-than-average gas inventories in the United States. On Monday, the spot price at the U.S. benchmark Henry Hub crashed by 5 percent.
By Tsvetana Paraskova for Oilprice.com
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