LNG is almost out of the summer from hell, but Fall and Winter exports still face uncertainty. Downside risks include European gas storage levels well above 5-year storage levels and the ever-present risks of COVID resurgences throughout key export markets in Europe and Northeast Asia. On the other hand, some factors could support exports. Rising gas storage levels in the United States (particularly along the Gulf Coast) could continue to weigh on Henry Hub prices and support netbacks for LNG exporters. Furthermore, if Europe and Asia can continue to tame the virus then LNG/natural gas consumption could actually witness year-over-year increases. On balance, netbacks appear to be strengthening for LNG exporters in the Fall/Winter months, but COVID ensures that risks are tilted to the downside.

There’s increasing skepticism that any U.S. (or even perhaps North American) projects will take FID in the 2020s. Golden Pass’s announcement that it would raise capacity from 15.6 MTPA to 18.1 MTPA has only added to the difficulties confronting U.S. and even North American LNG projects. We do not expect any U.S. projects to take FID this year (and perhaps in 2021 or longer). Sempra’s Costa Azul project (on Mexico’s west coast) is facing permitting difficulties with the Mexican government. It’s noteworthy that Sempra has said it will take FID only after receiving approval from the Mexican government, suggesting that it regards regulatory hurdles as a significant barrier.

While there has been essentially no forward momentum on most LNG projects, some have fallen by the wayside. Magnolia LNG was sold for $2.25 million USD – a pittance, suggesting that the buyers valued it only for its real estate. But the news hasn’t been all negative. Warren Buffet’s Berkshire Hathaway Energy bought Dominion Energy’s natural gas transmission and storage business, along with a 25% stake in Cove Point LNG.

Berkshire Hathaway’s foray into LNG could augur something we’re beginning to see in the Permian: the consolidation of the sector into larger, more liquid giants. A complicating factor in the LNG space, however, is that some of the largest players have highly international and diversified plays, limiting their investment into any one region. Qatar Petroleum, in particular, is unlikely to expand beyond its investment in Golden Pass. The possible entry of private equity into the LNG space is a trend worth watching carefully.

What’s going to happen with the U.S. – China trade deal and will LNG be a part of it? The U.S. and China inked a Phase I trade deal where China promised to buy $200 billion worth of U.S. goods and services over two years. The Chinese side appears highly unlikely to fulfill this commitment amid the pandemic and growing bilateral political and military tensions. It’s possible (but perhaps not likely) that Chinese buyers will buy spot LNG cargoes from U.S. exporters in order to maintain the deal. A few factors limit this probability, however. First, U.S. – China political tensions are more likely to rise than abate. Second, Chinese LNG markets are already highly saturated. Third, China has delayed at least five new LNG regasification terminals in China and two terminal expansion projects to 2021. Fourth, the PRC is embarking on gas-to-coal (not a typo) fuel switching. Finally, if China wanted to buy U.S. LNG, why didn’t it ink short-term contracts at (what appears to be) the bottom of the market, when offtakers were cancelling cargoes right and left in the early summer? Some in the market think that Chinese offtakers could support U.S. LNG exporters later this year. We are skeptical.

As we said even before the pandemic, this summer was always going to be brutal for U.S. LNG exporters. Fall and Winter offer some hope for LNG exports, but substantial risks remain. Domestic and international COVID developments will continue to drive energy and LNG outcomes.