Malaysia’s national oil company Petronas has sounded out customers on the possibility of more LNG cargoes being deferred for the winter months from its nine-train LNG complex at Bintulu, Sarawak, traders and end-users told S&P Global Platts.
The potential delays come after Petronas had already requested for deferrals for August LNG cargoes, and could add to tighter demand-supply fundamentals in the Asian LNG market, with a bullish price impact.
Petronas contacted several Japanese LNG importers in the last few weeks cautioning them that cargoes due for delivery in the November-January period could be impacted, although no deferrals have happened yet and no notifications of deferral have been sent out so far, several market participants in Japan said.
Traders said Petronas is contractually obligated to try and make up for the deferrals from its wider LNG supply portfolio and has the ability to widen its own procurement from the market, to try and minimize any impact on customers and uphold its commitment to buyers.
The Malaysian LNG exporter has been able to offset supply issues in the past and the early warnings are meant to seek buyers’ understanding during mitigation efforts, as Petronas may still need to exercise contractual flexibilities in its agreements as a last resort, traders said.
LNG exporters are generally able to meet their contractual obligations and minimize the impact on customers, even during periods of high demand and despite tighter margins in a high price environment, to maintain business relationships, market participants said.
“Petronas would like to clarify that there is no supply disruption to our operations at the Petronas LNG Complex in Bintulu, Sarawak,” the NOC said in a statement in response to queries, but did not comment on early warnings to its Japanese customers about the possibility of winter deferrals.
“We haven’t received any concrete notice [on cargo deferrals] but we are worried that our November and December delivery cargoes may be impacted,” one buyer said.
Another offtaker said any cargo deferrals for winter months will be “disappointing” as “JKM [price] is going up and winter peak is approaching.”
“If they do this, people will have to cover [their positions], yet it is also unclear whether they will prioritize winter cargo deliveries by contracts, trains or other parameters,” the same offtaker said.
Japanese offtakers have said the notifications from Petronas relate to cargoes tied to term supply contracts, implying that there would be a higher dependence on their spot LNG portfolio to make up for any shortfall in term supply.
Market impact
These discussions come after Petronas had requested its Japanese customers to postpone cargo deliveries scheduled for August to September or October, and have raised concerns among Asian LNG importers that are already seeing record-high prices for spot LNG for this time of the year.
The S&P Global Platts JKM for October delivery has soared past $20/MMBtu, and was assessed at $20.038/MMBtu on Sept. 8.
“The potential for cargo deferments this winter could force some end-users into the spot market if the supply is pushed later into next year, as recent memories from last winter will likely lead many to secure cargoes in anticipation of any temperature-driven demand spikes,” said Jeffrey Moore, Asia LNG manager at S&P Global Platts Analytics.
Petronas won support from at least three Japanese offtakers to defer delivery of cargoes from August to September or October, Platts reported Sept. 6, but the NOC may find it tougher to get consent to do the same for those scheduled for November to January as buyers and end-users want certainty on winter supplies.
While upstream sources have cited spikes in COVID-19 infections in Sarawak and Sabah that have spread to offshore projects supplying gas to the Bintulu LNG complex, Japanese offtakers said they had also been notified of feed-gas issues due to late production startup at gas fields designed to backfill the project.
Source: Platts