- Supply disruptions are weighing on some of the world’s largest LNG traders
- Majors have faced hundreds of millions of dollars in losses in recent months due to a string of production outages
- The majors acknowledged in their earnings calls that there was an impact on gas marketing and trading divisions, without providing any numbers
Despite sky-high LNG prices, the world's largest liquefied natural gas traders have seen hundreds of millions of U.S. dollars in losses in recent months as production outages diminished the supply of cargoes under off-take deals, forcing traders to source more expensive spot LNG to fulfill orders. The top LNG traders, some of which are also the biggest international energy majors, realized lower earnings in their gas trading divisions in the second quarter compared with an "exceptionally strong" first quarter, majors such as Shell (LON:RDSa), BP (NYSE:BP) and TotalEnergies said in their earnings releases.
The super-majors, however, did not quantify the impact of reduced LNG supplies, mostly stemming from the Freeport LNG outage in the United States in early June, but also due to an industrial action at Shell's Prelude floating LNG platform offshore Australia and lower supply from Nigeria's NLNG due to security reasons.
The majors acknowledged in their earnings calls that there was an impact on gas marketing and trading divisions, without providing any numbers.
Industry sources told Reuters that the hit from the Freeport LNG outage to BP exceeded $500 million.
Freeport LNG accounts for 20% of the United States' total LNG export capacity, capable of processing 2.1 billion cu ft of gas per day. According to Freeport LNG, it is the seventh-largest liquefaction facility in the world, and the second-largest in the United States. Freeport LNG said earlier this month it would restart in October three liquefaction trains, two LNG storage tanks, and one loading dock, which will make it possible to start exporting again at a rate of 2 billion cu ft daily. This, the company said, would serve to fulfill its obligations to clients with long-term contracts.
BP declined to quantify the impact of the Freeport LNG outage during the earnings call in early August, with CEO Bernard Looney saying, "Just on Freeport, we are not providing a number. But what we are saying is that management's best estimate of the full impact of the Freeport outage is in today's accounts. So full impact, our best judgment is in today's accounts."
Compared with the first quarter, in gas and low carbon energy, the result benefited from higher realizations, offset by an average gas marketing and trading result following the exceptional performance in the first quarter, BP's executives said.
"The result includes our best estimate of the impact of the recent outage at Freeport LNG leading to a significant reduction in the number of cargoes expected to be received," they added.
Shell, for its part, said that its record adjusted profit for Q2 "compared to Q1 2022, reflects higher realized prices and refining margins, stronger gas and power trading and optimization results, partly offset by lower LNG trading and optimization." Shell said its LNG sales volumes dropped from 18.29 million tons in the first quarter to 15.21 million tons in the second quarter, and warned that the industrial action at Australia's Prelude makes the Q3 outlook more uncertain.
TotalEnergies, while saying its average LNG selling price was $13.96/Mbtu in the second quarter, more than double the same period in 2021, admitted that its LNG operations would be affected by the Freeport LNG outage in the third quarter.
Replacing cargoes from Freeport with others sourced on the spot market will come at a cost, TotalEnergies CEO Patrick Pouyanné said on the Q2 earnings call. TotalEnergies received two cargoes in the second quarter, and "planned accordingly eight missing cargoes for the next quarter."
"So of course, we will have to replace these cargoes on the spot market, so it has a cost. But I will tell you it's already taken into account somewhere in our results partially. We will not use that excuse to tell you that the results in Q3 are lower than in Q2," Pouyanné added.