US LNG producers are facing more order cancellations as buyers struggle to secure dwindling storage space amid weak demand caused by the COVID-19 pandemic. An industry survey by Bloomberg showed that buyers of US LNG could cancel a total of 35-45 cargoes for July loading, much higher than cancellations in June. The figure represents over 50% of the average monthly LNG shipments from the US.
The cancellations will likely translate to lower production by US liquefaction facilities, which can ease the global glut that has pushed prices to historic lows. However, supply from other exporters has been robust despite weak demand due to the health crisis and warmer temperature.
Trading sources said that buyers with long-term supply contracts had asked Cheniere Energy Inc., US biggest LNG producer, to cancel as many as 30 cargoes for July loading. This is compared to 10 cargoes cancelled for June loading. The sources also noted that Cheniere might also cancel some of its own cargoes that usually go into the spot market. Sempra Energy and Freeport LNG also received requests to cancel orders, they added.
Weak pricing in Europe and Asia means that exporting US LNG to those regions is not profitable. Traders expect they will lose $0.70/MMBtu for exporting US LNG to Europe, while export to Asia will incur a loss of about $0.40/MMBtu. Analysts said cancellations might occur until October, given the negative export profit margins.
