Global demand for liquefied natural gas, which has weakened as a result of the Covid-19 pandemic, is expected to rebound in the coming months as nations recover from the crisis, Cheniere Energy officials said Thursday.

"While the demand impact of the coronavirus remains uncertain in the near term, we expect that many concerns will be alleviated in the coming months as the world recovers from the pandemic, lockdowns are lifted, and economic activity resumes," Cheniere chief commercial officer Anatol Feygin said during an earnings call.

Despite the pandemic, demand for LNG in Asia grew 7% in the first quarter compared to year-ago levels. In China, Cheniere saw demand grow in March after falling in February, Feygin said. In addition, he noted that preliminary numbers for April showed LNG imports in China had increased month-on-month by about 25%.

In Europe, demand fell in the region's six main gas markets compared to first-quarter 2019 levels. Yet the region imported 25% higher quantities of LNG year-on-year, according to Cheniere's analysis. Meanwhile, imports of US LNG increased 40% compared to the same period a year ago.

"Longer term, we continue to be constructive on gas demand in Europe as the energy landscape changes due to the region's decarbonisation goals," Feygin said.

In the coming months, the market for US LNG exports may see some additional upside as three nuclear reactors in Asia are expected to come offline and as various nations deploy stimulus packages to counter the economic fallout from Covid-19.

"Looking beyond current market events, we believe that long term fundamentals have not changed and that LNG remains a reliable competitive and flexible solution to the energy needs of both Asia and Europe," Feygin said.

"We believe that the current market and economic conditions, although challenging, are improving our competitive position over the medium and long term."

Cargoes cancelled

Cheniere's optimistic outlook comes amid reports that customers have cancelled as many as 16 cargoes from the operator's facilities in Louisiana and Texas, causing some market-watchers to question the company's business model.

On Thursday, chief executive Jack Fusco said there had been some cancellations but declined to disclose how many. He defended the business model, saying the option to cancel cargoes under Cheniere's sales-and-purchase agreements (SPAs) gives customers flexibility in uncertain markets. The agreements require customers provide Cheniere with a long-term notice of cancellation and pay liquefaction fees.

"We feel very comfortable with our customer base and with our SPAs, that our customers have have been given the flexibility to cancel the cargoes with long-term notice," Fusco said. "It lets us plan around what we need to do, it gives them a good option, they value that option and we're seeing them utilise it the way they would utilise it."

In a securities filing, Cheniere said it took in $53 million in revenues during the quarter related to cancelled LNG cargoes.

The company reported total first-quarter revenues of $2.7 billion, a 20% increase over the same period a year ago. The increase came as Cheniere loaded 128 cargoes, a 47% increase over prior year-quarter.

Cheniere also reported net profits of $375 million, a 166% increase year-on-year.

Projects

Cheniere's outlook, though somewhat rosy, included a bleak outlook for LNG final investment decisions in the coming months.

Prior to the Covid-19 pandemic, Cheniere had forecast that projects with capacity amounting to roughly 126 million tonnes per annum would be sanctioned in 2020 and 2021. Now, the company expects only 65 million tpa to move forward.

"Supply and demand dynamics are tightening the competitive landscape, driving some LNG projects with higher breakeven thresholds out of the probable FID stack," Feygin said.

Among those projects the company expects to move forward in the next year or two is its own Corpus Christi Stage III expansion in Texas, which envisages the build-out of up to seven mid-scale liquefaction units producing a combined total of 9.5 million tpa.

The project marks a departure from the first three units at Corpus Christi, which are large-scale trains producing 4.5 million tpa each.

Feygin did not specify when an FID may occur at Corpus Christi, but said sanction would depend on obtaining sufficient commercial agreements to support the project.

The third and final large-scale train is currently under construction at the facility and is roughly 84% complete. Substantial completion is targeted for the first half of next year.

At the flagship Sabine Pass LNG facility in Louisiana, construction on a sixth train is about 54% complete, with substantial completion expected in the first half of 2023.

LNG

Cheniere sees green shoots following Covid-19 pandemic