Global LNG suppliers are starting to cut output, forced by the coronavirus-related lockdowns which pummel demand and prices. Virus containment measures have paralyzed global economic activity and depressed gas demand for power generation, cooking, heating, transportation, and chemical production, including in the world’s biggest LNG markets such as Japan, China, South Korea, and India.
As a result, Asia’s spot LNG prices hit new record lows. The prices fell to their all-time low at $1.85/MMBtu last week as more supplies flooded the market. Analysts said that at a price of $2/MMBtu some producers are almost unable to recover cash costs of their operations and expected some of them to shut in production soon. At the same time, global LNG demand growth is expected to slow to 2% in 2020 from 13% in 2019.
The cost to produce LNG in the US reached $4/MMBtu, including shipping, analysts at Bernstein said. With such high production cost, many US liquefaction facilities have lowered their utilization rate. Gas intake by US LNG plants fell by 0.6 Bcfd from February to 8.1 Bfcd last month. Asian and European buyers have cancelled about 20 shipments for June loading. Market participants expected exports to have fallen more significantly than previously estimated and the fall might continue through the summer.
Australian coal-bed methane projects also incur high production gas and are expected to face intense pressure to slash output. Australia Pacific LNG and Santos Ltd have claimed to have cut the cost of coal-seam gas production in recent years. However they said that customers have opted to purchase lower volumes in 2020.
