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The U.S. LNG industry expects to see buyers cancel as many as 45 LNG cargoes for August loading as natural gas demand in the Asian market and bloated European LNG inventories sap enthusiasm for U.S. LNG, Reuters sources said on Monday.
That’s similar to the number of U.S. LNG cargoes that were canceled for July loading as well. For June loading, the cancellations were fewer but still substantial—anywhere from 20 to 30.
Part of the problem is the narrow profit margin for U.S. LNG, with Henry Hub prices sitting too close to European gas prices. Just 10 cents per million British thermal units separate the two. At that price, it’s impossible to turn a profit when factoring in shipping costs.
It’s less expensive to pay the cancellation fee.
The cancellations in July and August will mean that U.S. LNG exports will fall by one-third compared to how much the U.S. was shipping back in January.
So far, the cargo cancellations have hit Cheniere’s production the hardest, according to S&P Global Platts.
The canceled cargoes go to support the notion that the U.S. has become the industry’s swing producer, flailing when times are tough and booming when times are good. The cargo cancellations will soon—if they haven’t already—spill over into chartered vessel demand, pipeline transport volumes, and eventually shale gas drillers in the United States, as demand for LNG at U.S. export terminals remains subdued.
Related: WTI Jumps To $40 On Demand Recovery
IHS Markit analyst Matthew Shruhan forecast in May that more cancellations would follow.
Sustained low prices for LNG have already caused companies to cut capex and to delay LNG projects going forward, which will, in the long run, help to deplete the inventory overhang. Morgan Stanley sees this overhang dissipating sometime in 2022.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.