LNG’s Black Friday

LNG’s Black Friday: Endgame For TELL,
Magnolia (LNG-ASX) Gets Taken Out

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The Walls Close In Around TELL – Stock Down 72% This Week As Liquidity & Commercial Realities Finally Overlap. TELL has traded down 52% today, as continued commercial slippage, mounting liquidity concerns, and the broader market de-risking have combined to price-in the new economic reality for Tellurian: It’s not going to make it. The week started off with proponents of TELL/Driftwood wondering whether another presidential photo-op and some interim Petronet commercial progress could be stretched into an event meaningful enough to support a TELL capital raise and runway extension. It was a thin premise to begin with, and the list of plausible alternatives was already getting shorter. We believe what followed – first silence, then Petronet seemingly downsizing to a 1.0mtpa competitive tender, then an extension of the original Petronet MOU which brought TELL’s next maturity into play – was effectively the latest in a string of “the emperor has no clothes” moments for the remaining TELL bull thesis. It just happened to coincide with one of the steepest market corrections in recent history. See Pages 2-4 for more detail.

LNG Ltd. (Magnolia LNG) Magnolia LNG Developer Likely Going Private In $75MM Takeover Deal: We’ve suspended our coverage and estimates for LNG Ltd. On 2/28, Liquefied Natural Gas
Limited (ASX: LNG, US ADR: LNGLY) halted trading as it entered into a bid implementation agreement (BIA – Figure 2) with LNG9 PTE Ltd. Under Australian law, the bidder (LNG9) needs to get to 90% to force full consolidation, with options to get there if it doesn’t initially hit that hurdle. LNG9 will make an off-market takeover bid to acquire all issued ordinary shares of LNGL and take the company private (offer to shareholders to commence on April 2 and close on May 3). According to management the deal comes after a very thorough vetting of the market. Stonepeak also seems…See Pages 4-6 for more detail. 

LNG Update: Coronavirus Force Majeure — Context, Data, and Exposure

Corona-Related Force Majeure: Highlights From Our Recent LNG Update

• Chinese LNG Contractual Exposure – SPA Breakdown By Counterparty                          Pages 2, 5-9
• Historical Context – SARS, 6 Previous Global Health Emergencies                                    Page 2
• NT Flash Points – 16 LNG Carriers Set To Call In China, Details                                           Page 3
• Logistical Headwinds – Trucked LNG Data, Breakdown                                                        Pages 4-5     
• Force Majeure Language – Cheniere (LNG)                                                                             Pages 10-12           

Coronavirus Puts Force Majeure In Play For Chinese Contracts: After days of speculation that Chinese LNG importers (CNOOC, Sinopec, CNPC) were considering invoking contractual force majeure clauses in their LNG contracts, CNOOC (China’s largest LNG importer – Figure 1) announced it had issued force majeure notices to their suppliers due to fallout from the coronavirus (nCoV). Total has reportedly rejected CNOOC’s notice of force majeure, setting up what we expect to be a continued string of notices and conflicting rhetoric, as the relatively opaque process plays out in a weakened and nervous LNG market, and amid the Q419 earnings cycle. While the ultimate impact of these contractual disputes is unclear – ranging from timeline delays (EPC), non-payment, and beyond — what does seem clear is that the issue should continue to build. As noted in Figure 3 – there are 16 LNG vessels scheduled to discharge in China over the next 5 business days, and we’d expect additional contractual flash points ahead.

Validity To Be Determined. We hope to get more clarity on the validity of force majeure claims in the coming days — particularly as they pertain to DES (fixed destination) and FOB cargos (flexible destinations — like Cheniere’s) which can be diverted to unaffected markets. We would think it’s less likely Cheniere’s FOB cargoes would be impacted by force majeure issues at the geographical origin of the original purchaser, given their inherent flexibility.

More Than Just A Demand Headwind In China. It’s also worth noting that Corona issues go beyond simply demand destruction within the Chinese market. Given pipeline infrastructure limitations in China, significant volumes of LNG are trucked to end users (Figures 4 & 5), which also brings logistical issues to the forefront, as there’s likely a similar lag in LNG truck drivers returning to work as those in factories and mills following the Lunar New Year holiday and quarantine efforts by the Chinese government. The risks also expand beyond volume-based LNG contracts, with shipyards, hard-asset delay schedules and tangential energy infrastructure also potentially impacted. Late yesterday gas producer Energean noted TechnipFMC had claimed corona-related force majeure on a FPSO meant for an Israeli offshore project

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It’s Barge Week At Webber R|A!

KEX: Previewing Q419 Earnings & 2020 Guidance

• Inland & Coastal Color:                                                                  Page 3-4
• Inland Spot & Term Pricing Data (Current/Historical):            Page 5
• Inland Barge Orderbook & Delivery Schedule:                        Page 6

Heading into KEX’s Q4 earnings call (1/30) we expect a focus on: (more…)

LNG Update: USG Pricing Color & Mubadala Builds Its NEXT Stake

Updated Pricing Color For U.S. Developers: Cheniere, Shell, Venture Global, Next Decade, Freeport, Annova, Commonwealth, Delfin & More. Over the past week we’ve had several conversations with LNG buyers, project developers, and downstream operators, with the more pertinent color below:

LNG Pricing Currently Being Offered In The USG:
• Consensus Range: $2.25–2.40/mmbtu – Individual Developer Pricing Details On Page 2
• Outlier: $2.10-2.20/mmbtu – Individual Developer Pricing Details On Page 2
• Outlier: Offering ~$1.75/mmbtu – Individual Developer Pricing Details On Page 2

Favored Projects: Buyer With Some Effective Baseload Exposure – In the U.S. only really considering a handful of projects (page 2),  however, Qatar is the most likely – and buyer has option to pull from Ras Laffan or Golden Pass. Webber Note: the optionality here provides another window into how Qatar is marketing their entire ~100mtpa portfolio.

Venture Global: At least 2 buyers in Calcasieu potentially going back for more LNG in Plaquemines, site visits are still ongoing (page 3).

Project Roll Ups: One buyer speculated we’ll see some of the 3rd and 4th tier Greenfield projects get rolled up in 2020, as existing players look for cheaper growth optionality and early stage projects solve for funding issues. Webber Note: we agree, and think it could start in the next quarter or two, with a Brownfield or well-funded player consolidating some pre-FEED or pre-FERC powerpoint projects.

Mubadala Builds NEXT Equity Position: On 12/12, NEXT filed a shelf registration for 10.1MM shares, controlled by Mubadala Investment Company (Mubadala) – 8.0MM of which were issued to Mubadala on 10/24 (at $6.27/share) and 2.1MM of which Mubadala acquired from another shareholder (we believe BKR). While the stock traded off 4% as the registration headlines spooked the market a bit (unfortunately, a relatively predictable outcome, even for a maintenance filing), the stock regained the lost ground relatively quickly. We view the BKR sale (via BHGE) as mostly a post-spin cleanup effort, with at least  read through here that Mubadala likely wanted more equity than NEXT was willing to issue on a primary basis.

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Webber R|A: Vertical LNG Weekly

FERC Approves 4 Texas LNG Projects: On 11/21 The Federal Energy Regulatory Commission (FERC) voted in favor (2-1) of all three Brownsville LNG export terminals (below), along with Cheniere’s CC Stage – 3 expansion – granting all 4 projects final approval. Among those approved:

• NextDecade’s (NEXT) Rio Grande LNG (~27 mtpa)
• Annova LNG Brownsville (~7 mtpa)
• Texas LNG Brownsville (~4 mtpa)
• Cheniere’s (LNG) CC Stage – 3 expansion (~9.5 mtpa)

The approvals made meaningful progress for the projects, and come amid an uptick in local environmental pushback in Brownsville. While FERC approval is certainly helpful, all 4 projects still require meaningful commercialization targets to reach positive FID. We remain buyers of LNG and NEXT, as we view the Texas coast as the path of least resistance for associated Permian gas to reach the international markets.

Creating A Residual Value Floor: It’s also worth noting that we think the combination of an advantaged location and FERC approval effect helps create a meaningful asset and (to some degree) a valuation floor for the respective development companies. While we think the idea FERC/Site asset would have most of its practical relevance in a distressed scenario, we think its meaningful none-the-less, and not something we feel would be equal among projects (due to proximity advantages to the Permian).

European Investment Bank (EIB) Announces Phase Out Of Fossil Fuel Lending: Roughly two weeks before the 25th session of the Conference of the Parties (COP 25), the European Investment Bank (EIB), EU’s nonprofit long-term lending institution, announced it would (effectively) stop lending to fossil fuel projects, via particularly tight environmental guidelines. While the move is another meaningful step towards the de-carbonization of Europe, the immediate impact on LNG infrastructure is highly muted. For scale, the EIB lent out ~€11.8BN between 2013 and 2017, compared to JPM financing ~$62.7BN in 2018 alone. It’s also worth noting that the EIB can choose how they define alignment to the Paris Agreement, while others (World Bank, EBRD, Asian Development Bank, etc.) can choose different interpretations, and these institutions will still be able to finance midstream/downstream gas and gas-fired projects. On a more granular basis, most demand (and incremental lending) for natural gas projects now comes from non-European markets. Which typically has access to wider pockets of capital. For example, Mitsui recently invested in a major gas-fired power plant in Thailand, with financing provided by the Japan Bank for International Cooperation. Hence, we think the EIB move is material in the sense of sector leadership, but we aren’t expecting a dramatic market impact, at least at this point. Other notable takeaways from the EIB announcement: …….

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Webber Research: Global Shipping Weekly

Russia May Delay IMO 2020 Compliance:

Russia, a large producer and exporter of high sulfur fuel oil, intends to delay full implementation of IMO 2020 regulations until 2024. This will only be in effect within local waters (including Belarus, Kazakhstan, Armenia and Kyrgyzstan). Despite investments in Russian refineries, only one Russian oil producer (Lukoil), has the ability to produce fuel that complies with IMO 2020 standards. It’s worth noting that, IMO regulation enforcement falls on Russia, not the IMO itself. While there are audit mechanisms for corrective action plans, there are no punitive measures for violations. Earlier this year, Indonesia also flirted with the idea of not enforcing IMO requirements, but later backtracked and pledged commitment to the IMO 2020 standards.

Tanker Spot Rates Continue To Slide:

VLCC spot rates (TCEs) down last week with rates ending at $54.8k/day (-23% w/w and -81% m/m). Suezmax TCEs ended the week at $39.0k/day (-28% w/w and -76% m/m) while Aframax rates ended the week at $21.5k/day (-23% w/w and -63% m/m). As the market digested the chaotic past few weeks, owners are starting to temper expectations with freight rates and have been giving up gains. We note rates remain well-above mid-cycle levels.

IMO 2020 Update:

Earlier this week EURN signed a partnership with T.A.G. Marine, operator of Kuala Linggi International Port (KLIP), that will allow EURN’s ULCC Oceania to float and

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