Buyers of U.S. LNG to Cancel 40-45 Cargoes

Buyers of liquefied natural gas (LNG) are expected to cancel 40 to 45 cargoes for August loading from the United States due to a slow recovery in Asian gas demand and record-high European gas stocks, market sources said on Monday.

The exact number of cancellations is yet to be confirmed as the deadline of some projects is on Monday, but six of the sources said they expected the number of August cancellations to be close to 40 to 45 cargoes, the same number that was canceled for July loading.

That followed at least 20 to 30 U.S. LNG cargoes canceled for June loading after the coronavirus pandemic hit gas demand globally, causing gas and LNG prices to plummet.

The premium of gas prices in Europe over the U.S. Henry Hub remains too tight to deliver U.S. cargoes with a profit, sources said.

The August contract on the Dutch gas hub was trading around $0.10 per million British thermal units above the Henry Hub for August on Monday.

"At those levels, European buyers are looking at a loss of over $5.00 compared with just paying a cancellation fee of $3.00-$3.50," a trader with knowledge of the matter said.

Another trade source said that close to 30 cargoes were likely canceled from Cheniere Energy's plants, Sabine Pass in Louisiana and Corpus Christi in Texas.

Up to 10 cargoes could have been canceled from the Freeport plant in Texas, the source said, adding that there were likely cancellations from other U.S. projects as well, with a total of around 45 cargoes canceled.

Some sources said, however, that loading a cargo in August might make more sense compared to June and July, as there was a price contango between August and forward months, with shipping rates low.

But finding a ship for autumn months could be difficult, a trader in Europe said.

Cheniere declined to comment on the cancellations but a company representative said "the flexibility inherent in our LNG contracts – destination flexibility and the option to not lift cargoes, but pay the liquefaction fee – helps our customers effectively manage their energy portfolios through market cycles, while still providing Cheniere with reliable cash flow."

Freeport LNG said it does not comment on the activity of its customers' cargoes.

(Reporting by Ekaterina Kravtsova and Jessica Jaganathan in Singapore; Writing by Nina Chestney; Editing by Edmund Blair and David Evans and Kirsten Donovan)