US LNG exporters could see cargo cancellations later this year amid ongoing gas storage injections in Europe and weaker LNG demand in Asia, Morgan Stanley revealed in a recent research report.

Asia consumption needs to rise to absorb an eventual slowdown in imports into the EU as “absent higher Asia imports, there is some risk of a moderate amount of U.S. cargo cancellations in late third-quarter 2023,” Morgan Stanley said in a June 12 report.

“While the build rate of EU inventories has slowed somewhat in recent weeks, storage is still on pace to hit 100% full by September,” Morgan Stanley said.

Morgan Stanley’s EU strategist Martijn Rats said there are steps that could prevent this.

“In order to prevent this, EU LNG imports need to fall by 2 mt [metric tons] to 3 mt per month on average in the third quarter (6-8 mt lower quarter-over-quarter). To absorb the resulting ‘excess’ LNG cargos, Asia imports would need to rise 10% in the third quarter [versus] the second quarter,” Rats said. “While some of this uptick should occur from demand seasonality due to summer weather, underlying consumption also needs to increase relative to the recent trend.”

Amid weakness in demand, prices for the JKM Asian benchmark have continued to fall and are now below the $10/MMBtu mark with a second-quarter average of approximately $11/MMBtu, the consultancy said.

“Despite lower prices, demand still has not recovered. Over the last four weeks, global demand ex-Europe is up only 1% year-over-year. In Asia, the picture is mixed. China and India have both shown strong year-over-year increases in LNG imports (+15% and +14% year-over-year, respectively). However, this strength has been offset by continued weakness in Japan (-16%) and South Korea (-15%),” Morgan Stanley said.

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