Lower global demand has hit LNG producers hard over the past few months. Natural gas demand from LNG facilities peaked near 10 Bcf/d in late March, only to fall to multi-year lows of just 3.5 Bcf/d at the beginning of June. However, additional flows into Cheniere’s Sabine Pass have helped LNG exports rise in recent days.
We mentioned last week (U.S. LNG Cancellations Mount, Keep Pressure on Summer Gas Prices) that LNG destination markets have not needed as much natural gas due to cratered demand. This in turn has made the LNG voyage to Europe and Asia uneconomic for spot cargoes departing the U.S.
LNG demand is important for U.S. gas balances, so lower LNG exports weigh on the U.S. benchmark, Henry Hub. Earlier this week, gas prices suffered as LNG feedgas was estimated to be at levels not seen since April 2019. As the week came to a close, natural gas flows into Sabine Pass climbed by over 1 Bcf/d.
Most of the LNG exported from the U.S. is under long-term contracts. This means that voyages to destination markets don’t have to be profitable for a cargo to be lifted. As demand starts to return globally, fewer and fewer cargoes are likely to be canceled, regardless of current arbitrage.
The chart above shows gas flows over the last two weeks into U.S. LNG facilities. The big mover over the past week has been Cheniere’s Sabine Pass. Freeport LNG and Cheniere’s Corpus Christi facility are averaging much lower volumes than in previous weeks and months.