PNG LNG sells June cargo at record low price

The Papua New Guinea (PNG) LNG project's sale of an LNG cargo for delivery on 3-11 June at around $1.80-1.90/mn Btu, from its 6.9mn t/yr export facility in Port Moresby, is an all-time low deal level below $2/mn Btu for spot deliveries to northeast Asia.

PNG LNG sold the cargo, which will load at the ExxonMobil-operated facility on 25 May, through a tender that closed on 22 April. The cargo size is estimated at 3.8 trillion Btu, which is larger than the average cargo size of 3.3-3.4 trillion Btu.

PNG LNG cargoes typically command a premium because of their higher calorific value and larger cargo size. But northeast Asian consumers suggested that the calorific value and size of the firm's June cargo should reflect a discount of around 5¢/mn Btu from market values for an average size cargo, given poor consumer appetite for large and rich cargoes. But the cargo was sold to a trader and not a consumer.

Indicative bids for first-half June stand at around $1.50-1.80/mn Btu today against offers some 30-60¢ higher. But buying ideas had fallen below the $2/mn Btu mark on 21 April, following an early June deal between Brunei LNG and a trader that was done at $2.05/mn Btu on 20 April. The cargo is for delivery on 9-10 June.

Market participants expect that other deals for deliveries in June will be done below $2/mn Btu this week.

Japanese buyers have largely stepped out of the spot market amid a nationwide state of emergency to combat the spread of Covid-19, while Chinese and Korean buyers with interest in June deliveries typically favour leaner cargoes. Limited tank storage for some buyers, who are increasingly considering making joint purchases with other firms because of space constraints, also makes it difficult for them to accept the larger PNG cargoes.

PNG LNG delivers its cargoes under a term supply agreement to Taiwan's state-owned CPC, China's state-owned CPC, as well as Japan's Osaka Gas and Jera.

Asian spot prices have been on a downtrend since the start of the year, buffeted by weak northeast Asian consumer demand, high inventory levels and excess supplies. Containment measures imposed in Asian countries in recent months have worsened the demand-supply imbalance.

The front-half month ANEA price, the Argus assessment for spot deliveries to northeast Asia, for deliveries in second-half May fell to an all-time low of $1.815/mn Btu on 22 April, down by around 65pc from $5.28/mn Btu a year earlier and around 62pc below its debut on 2 January at $4.79/mn Btu.

Market participants expect further weakness for June deliveries but suggest that the current price spread between June and July deliveries is likely to remain unchanged or widen slightly. They expect that northeast Asian demand for LNG for power generation in the summer, coupled with fewer supplies from the Atlantic thanks to June cargo cancellations at several US plants, could support July prices.

The spread between both halves of June and first-half July deliveries stood at 24.5-35.5¢/mn Btu on 22 April, based on the ANEA price for first- and second-half June at $1.915/mn Btu and $2.025/mn Btu, respectively, and first-half July at $2.27/mn Btu.

By Camille Klass and Joey Chua