Dictionary reports that a squib is a small firecracker.
Markets LNG Buyer Cancels Cargoes From Biggest U.S. Exporter in Glut by Anna Shiryaevskaya and Naureen S Malik with assistance by Stephen Stapczynski, February 20, 2020, Bloomberg
A buyer of liquefied natural gas has canceled two cargoes from Cheniere Energy Inc., the biggest U.S. exporter, as a global glut pummels prices for the fuel and threatens to shut a key outlet for shale production.
Spanish utility owner Naturgy Energy Group SA has decided not to take delivery of two shipments from Cheniere, according to people with direct knowledge of the matter. The cargoes, one of which was scheduled for April delivery, were rejected by Naturgy’s clients Repsol SA and Endesa SA, who had originally purchased the volumes from Naturgy and will now pay a fee, the people said.
The cancellation could be an early sign that global oversupply is poised to hammer the U.S. gas market, which is already straining under the weight of a domestic glut that’s sent local prices for the heating and power-plant fuel crashing to 1990s-era seasonal lows. Prices in Europe and Asia have also collapsed as storage levels rise amid a mild winter, making it tougher for LNG buyers to make a profit reselling U.S. cargoes abroad.
The coronavirus outbreak in China, meanwhile, is stifling LNG demand from the world’s fastest-growing importer. While the Asian nation hasn’t directly imported any U.S. cargoes in more than a year amid trade tensions, the virus has contributed to the global price rout. PetroChina Co. is said to have delayed discharge of multiple LNG deliveries.
At least two Japanese buyers are also considering canceling cargoes from the U.S. that they had expected to load before summer, according to traders with knowledge of the matter, adding that no final decisions have been made.
LNG exports have been a relief valve for U.S. gas producers as output from shale basins soars to record highs. In the Permian Basin of West Texas and New Mexico, where gas is extracted as a byproduct of oil drilling, prices have slid below zero amid pipeline bottlenecks; that means producers are paying others to take their supply.
More gas-fired power plants would have to be built in the U.S. and abroad to ease the current supply glut, said Campbell Faulkner, chief data analyst for commodities broker OTC Global Holdings.
“Prices globally are converging and until there is a boatload of new generation built domestically and abroad, there is just simply not much room in the market” for more gas, he said.
LNG, once vaunted as a savior for the U.S. gas market, “looks to be a damp squib,” he said.
Cheniere, while declining to comment on specific commercial arrangements, said the flexibility its contracts provide is appreciated by customers and that the fixed-fee portion of the agreements ensures cash flow to the company even when a delivery is suspended. Naturgy declined to comment. Repsol and Endesa didn’t respond to calls and emails outside business hours in Spain.
Customers of the American exporter have to pay a fixed tolling fee to reserve capacity, whether or not they take the LNG. Contracts give offtakers an option not to lift cargoes but to do so, they need to notify the exporter 45 to 60 days before the delivery date and pay their fee.
The canceled cargoes were to be loaded from Cheniere’s Corpus Christi facility in Texas, the people said. Naturgy has said it also has a contract with the exporter’s second plant, the Sabine Pass facility in Louisiana. Naturgy has sold volumes from Cheniere to its own clients in advance, the people said.
“The market seems to be overreacting to the perceived contract risk to established LNG companies like Cheniere, who signed very favorable contracts when the market was short gas in the early 2010s,” Katie Bays, co-founder of Washington-based Sandhill Strategy LLC, said in a message.