U.S. liquefied natural gas exports have been on a steady rise over the past year, especially to Europe, where they surged by 272 percent since July last year. However, this year’s hurricane season could interfere with the trend and compromise the flow of U.S. LNG to Europe and Asia.
While early forecasts for this hurricane season are favorable for the LNG industry, with overall expectations being for an average to below-average hurricane activity in the Atlantic, surprises can never be ruled out especially when so much is at stake.
In an article for Forbes, one of the world’s few certified consulting meteorologists, Jim Foerster, notes that the LNG companies in the U.S. are watching all hurricane season forecasts particularly closely due to the problems hurricanes could cause for the industry ranging from higher prices because of shipment delays to loss of equipment and revenues as a result of necessary evacuation.
Foerster says that the mild hurricane season expectations are based on the continuing El Nino making the Atlantic warmer, with a warmer ocean meaning fewer hurricanes. However, this El Nino is a weak one and it could weaker further as hurricane season progresses, according to Foerster. Still, early forecasts suggest at least three hurricanes will be of major size this season with at least one of these occurring in the Gulf of Mexico.
Unfortunately, there is little anyone could do to avoid the consequences of extreme weather although some advance planning could reduce the risk of the worst of these consequences playing out. This is what LNG producers are already doing, says Foerster: they are planning how to handle any unpleasant surprises this hurricane season. And this is one extra concern they do not need at this moment.
Last Friday, President Trump raised the 10-percent tariff rate on US$200 billion worth of Chinese products to 25 percent and threatened more goods to be added to the tariff list. China said it would retaliate, which may translate into higher tariffs on U.S. LNG, which is already subject to a 10-percent tariff.
U.S. LNG shipments to the world’s largest consumer are already on the decline and have been for quite a while. A recent Reuters report said these shipments have been falling since the start of the trade war last year, with the total in 2018 down to 27 tankers from 30 in 2017. In March and April this year, according to Reuters Eikon data, no U.S. LNG shipments arrived in China, although there are a few U.S. LNG tankers sailing right now through the Pacific that may be bound for China.
And then there is a bigger problem: BloombergNEF this month forecast that global LNG supply will swing into a sizeable surplus that will certainly drive prices lower.
“This year’s expected excess supply of 16MMtpa will be hard for the market to absorb, unless we get a dose of ‘wild demand’ for either a hotter summer or colder winter in North Asia or Europe. If not, pressure will be on LNG prices,” said the head of commodities at BloombergNEF, Ashish Sethia, in the analyst’s latest LNG Outlook.
Depending on “wild demand” is hardly a best-case scenario for U.S. LNG producers, but like hurricane season, this is out of their control. The best they can do is hope for the best and prepare for the worst.
By Irina Slav for Oilprice.com
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