Factbox: Mounting gas supply unwinds recent US domestic, global market gains

Elevated gas storage levels, mounting cancellations for US LNG export cargoes and rising WTI crude prices are weighing on the bullish sentiment that had characterized the US gas market earlier in May. After tumbling to a 16-month low at just 85.5 Bcf/d recently, S&P Global Platts Analytics now forecasts US gas production to see only minimal weakening in the month ahead before a midsummer recovery in output brings back incremental supply.

In the global market, collapsing European gas prices have prompted a wave of Atlantic Basin cargoes to move East in search of higher margins. On Wednesday, the prompt-month contract at Europe's benchmark TTF gas hub sank to its lowest on record, settling at just $1.15/MMBtu. As the Platts JKM dips back below $2/MMBtu, traders in Asia warned that the arbitrage from Europe had already closed.

"TTF is ducking for cover [around] $1.25/MMBtu, hoping to push more LNG back to Asia and to pull less Norwegian and Russian gas into Europe," said Ira Joseph, Platts Analytics head of gas and power, adding:

"Yamal LNG is responding in kind with a burst in Arctic traffic. More LNG suppliers will follow, pulling down JKM with it."

PRICES

**Europe's benchmark Dutch TTF prompt-month contract settled at $1.15/MMBtu Wednesday, marking its lowest on record, dating back to 2008.

**The Platts JKM for prompt, July-delivered cargoes has dipped back below $2/MMBtu in recent trading, settling at $1.91/MMBtu Wednesday - down 54 cents, or about 22%, from a midmonth high.

**The Henry Hub prompt contract continues to search for direction in late May, hovering in the $1.70s/MMBtu area as daily price volatility continues to ease.

**After eclipsing $2.40/MMBtu in early May, the Henry Hub balance-2020 forward curve has cooled recently, trading in the low-$2s/MMBtu amid waning optimism for a winter rally.

**Cash prices at the Permian Basin's benchmark Waha Hub continue to edge closer to parity with the Henry Hub, settling at $1.64/MMBtu Wednesday.

**Winter 2020-2021 gas prices at Waha continue trading near $2.50/MMBtu, with West Texas production expected to see only minimal growth this year beyond current levels.

TRADE FLOWS

LNG

**About 45 LNG cargoes scheduled to be loaded in July at US export terminals have been canceled by customers, according to market sources.

**More than two dozen of the canceled July cargo loadings are tied to Cheniere's Sabine Pass terminal in Louisiana and Corpus Christi terminal in Texas.

**The July cargo cancellations represent nearly two-thirds the average volume of US LNG that was produced monthly, when the coronavirus began to spread globally.

**Cheniere has received two newbuild LNG tankers to bolster its charter fleet as it looks to manage its shipping costs. A total of 12 long-term newbuild chartered ships have been signed to support supply contracts with Taiwan's CPC, Poland's PGNiG and China's CNPC.

**Ukraine has signaled interest in buying long-term LNG supply from a Louisiana company. The purported supplier, Louisiana Natural Gas Exports, shares a website and a local address with Global Energy Megatrend, the company that recently failed to close on a deal to buy Magnolia LNG.

Gas

**US gas production is rebounding in late May, recently rising above 86 Bcf/d.

**After bottoming out below 10 Bcf/d, Permian gas production is now also showing signs of a nascent recovery, briefly topping 10.6 Bcf/d earlier this week.

**US LNG feedgas deliveries are averaging just 6 Bcf/d in late May, down from record levels at over 9.5 Bcf/d just two months ago.

**Feedgas deliveries to Freeport LNG stood at 344 MMcf/d on Wednesday, the lowest in six months. The company will not say if the drop is maintenance or market related. Japan's Osaka Gas and JERA canceled a total of three July cargoes from the Texas facility, said market sources.

**US gas in storage was estimated May 21 at 2.503 Tcf for the week ended May 15. Inventories are now 407 Bcf above the five-year average and nearly 780 Bcf above year-ago levels.

INFRASTRUCTURE

**The US oil and gas rig count tumbled to just 357 last week, down just 12, but marking a fresh record low dating back to 2005, showed data from Enverus.

**The Permian Basin rig count fell to 185 - the basin's lowest since July 2016.

**Market weakness has prompted NextDecade to furlough staff, cut executive pay and delay FID until 2021 on its proposed Rio Grande LNG export facility in Brownsville, Texas.

**Australia's LNG Ltd. has sold Magnolia LNG to a US domiciled energy company, Magnolia LNG Holdings LLC. LNG Ltd. has declined to comment on the company's principals, except to say they are not connected to current management.

**Kinder Morgan's Elba Liquefaction has restarted two of three units that were shut in mid-May due to a compressor fire. No timetable is being given for resuming service on the remaining unit.

**Billions in spending cuts by US producers and pipeline operators will reshape what and when natural gas midstream infrastructure is developed over the next several years, said analysts.