US, Australia drive sharp falls in global LNG exports

Global LNG exports fell compared with a year earlier for the third consecutive month in July, mostly as a result of sharp drops in loadings from the US and Australia.

LNG exports fell by around 8pc in July to 27.2mn t from 29.7mn t a year earlier, according to preliminary ship-tracking data, marking the sharpest year-on-year decline since global loadings first halted years of growth in May. The drop in July was equivalent to about 34 standard-sized cargoes.

US producers led exports cuts, with loadings of 1.9mn t in July down by around 1.24mn t compared with a year earlier, despite an increase in the country's liquefaction capacity to 74mn t/yr from 46mn t/yr at the beginning of July 2019. Covid-19 weighed heavily on global gas demand and delivered LNG prices to such an extent that it became uneconomical to lift US cargoes. Around 40 July-loading cargoes were heard cancelled by offtakers, which would equate to around 3mn t.

Australian shipments fell by around 1.04mn t from a year earlier to 5.79mn t in July, having already fallen to a 16-month low of 5.83mn t in June, according to the Australian Bureau of Statistics.

The decline in shipments partly reflected the shutdown of the Shell-operated 3.6mn t/yr Prelude facility, which has been off line since February. And the second train at Chevron's 15.6mn t/yr Gorgon LNG plant has been undergoing maintenance since May.

Northeast Asian buyers of Australia's oil-linked LNG supply may have exercised flexibility in their contracts to reduce receipts in recent months, as falls in oil prices in March could have provided an incentive for buyers to defer deliveries until later this year, depending on the price indexation period. China's imports of Australian LNG fell by 1.2mn t in July, despite overall Chinese LNG imports edging up last month compared with a year earlier. Similarly, Japan absorbed 510,000t less Australian LNG over the month compared with July 2019.

Some producers of Australian LNG have sold more volumes on the spot market in recent months. Independent Woodside sold 46pc of its LNG on the spot market in the second quarter, up from spot sales of 13pc in the first quarter. The primary driver for the higher spot sales included contractual flexibilities exercised by buyers, which resulted in five cargoes originally tied to contractual agreements being sold on the spot market, Woodside said. But the company does not expect buyers to seek to reduce contractual volumes in the second half of this year.

Oil-linked prices with a six-month (601) indexation period were in backwardation — prompt prices at a premium to forward values — until November on 7 August, while Argus northeast Asia (ANEA) des LNG prices were in contango — forward prices at a premium to prompt. This suggested that buyers with sufficient contractual flexibility would have an incentive to maximise deliveries of oil-linked volumes in October-December, when oil-linked prices hold their narrowest premium to corresponding ANEA prices.

By Livia Gallarati

Yoy change in major producers' July LNG exports mn t

Global LNG exports mn t

Oil-linked 601 and ANEA forward curves on 7 August $/mn Btu