Weak demand for LNG leads to record low spot market prices and postponement of some investment decisions

Globally, the demand for energy and energy-related products has been collapsing due to the measures introduced to slow the spread of the coronavirus. The effects have also manifested in the liquefied natural gas (LNG) market. Amid plunging gas demand, LNG producers are under pressure to dump their cargoes on the spot market, further depressing already low prices. 

In Europe, prices for natural gas have fallen from about $4/mmbtu at the beginning of the year and is expected to be below $2 in May. This is also reflected in LNG prices which are now below $3. 

Low demand has also forced many importers of LNG to break their contracts, citing force majeure clauses and forcing exporters to flood spot markets with excess cargoes. 

Spot supply has increased partly because of a big drop in demand from countries like India, as well as Italy and Spain, which have imposed lockdowns and strict travel curbs to slow the spread of the coronavirus. 

The result is an abundance of supply at the spot markets which are further pushing prices down as these markets function by the laws of demand and supply. 

China’s largest LNG importer, China National Offshore Oil Corp (CNOOC), suspended contracts with at least three suppliers and the LNG supply glut is pushing down Asian spot prices toward a record low in February when demand sank in China where the coronavirus originated late last year. 

The low-price environment and economic uncertainty have led to the delay of some LNG gas supply projects and some operators deciding to walk away from investments. 

One notable project set to be delayed is BP’s Tortue Ahmeyim floating LNG project offshore Mauritania and Senegal. Floating LNG vessel specialists, Golar LNG, indicated that it received a force majeure notice from BP seeking to delay by a year receipt of a floating liquefied natural gas facility for the project. Golar said that ‘The notice received from BP claims that due to the recent outbreak of the virus around the globe, BP is not able to be ready to receive the floating liquefied natural gas facility ‘GIMI’ on the target connection date in 2022’. 

Shell has also decided not to proceed with an equity investment into the Lake Charles LNG project that seeks to convert the existing LNG import terminal in Lake Charles, Louisiana to an LNG export facility. Their project partner, Energy Transfer, has said that they will proceed with the conversion project.