Shipping, rather than commodity prices, can often be a good barometer of the overall health of China’s manufacturing and of international trade, so it was quite a surprise to see a large number of empty container berths in the vast, sprawling container terminals of Singapore last week.
When driving in from Changi airport at night, the first indicator was the large number of container gantry cranes with their booms up, rather than down and working cargo. It may have been dark, but each crane is lit, so as not to be a hazard to aviation, so they were clear to see.
As my taxi drew nearer to the Tanjong Pagar, Keppel and Brani terminals, my eyes were not deceiving me and it was crystal clear that there were few ships in port. As we drove further west towards my final destination, near the new Pasir Panjang terminal, capable of handling the largest container ships in the fleet, the skyline was filled with upward pointing container crane booms.
Normally in Singapore, as soon as a ship comes off a berth, another is in place to quickly move alongside to take its place; but not so in the third week of March.
A large percentage of the container traffic in Singapore carries manufactured goods from China. The big ships come in, discharge thousands of containers that are destined to be transshipped onto smaller vessels better suited for trading to the Indian subcontinent and parts of the Middle East. Singapore also handles a large volume of empty containers on their way back to China.
Nowadays, when the bigger ships do come in, it is clear they are carrying far fewer containers than usual. Some say the high rates charged by the Port of Singapore are to blame, but several sources in the container business argue that Singapore has little competition as such a major transshipment point in southeast Asia and can, therefore, justify charging high rates compared with many other large, mainline container ports.
The statistics speak for themselves and confirm what the eye sees. In January, Singapore handled 2.49 million containers, down 10.4% from the 2.78 million that passed through the port in January 2015, according to the port’s own data. In February, Singapore handled 2.41 million containers, down 7.3% from 2.6 million a year earlier.
While Lunar New Year was in the first week of February, shipping is a 24/7 business, 365 days a year, and this year is a leap year, meaning that February had one more day compared with February 2015, yet the throughput still fell.
Given that we know China’s real slowdown began in late 2014 and gathered pace in 2015, it is not surprising that we see this reflected in the annual container throughput in Singapore in 2015 compared with 2014. In 2015 Singapore handled a total of 30.92 million containers, down 8.7% from 33.87 million in 2014. The 2014 total is clearly the high-water mark over the last 10 years and was up from 32.6 million mt in 2013.
With data in for just two months of 2016 so far, it is too early to tell whether this downward trend will continue. In the first two months of this year, throughput is down 8.85% year on year. If the trend continues, total throughput could fall to around 28.1 million containers, making 2016 the slowest year since 2010, when Singapore handled 28.43 million containers.
Some analysts argue that China is transitioning from being a manufacturing economy to one based on services and consumerism. If true, it implies the port throughput figures in Singapore could be in long-term decline, unless it becomes an import-dependent economy. But it is highly unlikely China as a service economy will succeed in keeping hundreds of millions of people employed. Only manufacturing can do that, which suggests that, at some point, Chinese manufacturing and exports will recover, and the container throughput in Singapore will also.
Given China’s demand for raw materials has such a significant bearing on the price of industrial commodities from crude oil to base metals, a visible recovery in international trade will be of interest to the broader commodities complex.
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A month ago, crude oil prices were riding a wave, comfortably trading in the mid-US$70/b range and trending towards the US$80 mark as the oil world fretted about the expiration of US waivers on Iranian crude exports. Talk among OPEC members ahead of the crucial June 25 meeting of OPEC and its OPEC+ allies in Vienna turned to winding down its own supply deal.
That narrative has now changed. With Russian Finance Minister Anton Siluanov suggesting that there was a risk that oil prices could fall as low as US$30/b and the Saudi Arabia-Russia alliance preparing for a US$40/b oil scenario, it looks more and more likely that the production deal will be extended to the end of 2019. This was already discussed in a pre-conference meeting in April where Saudi Arabia appeared to have swayed a recalcitrant Russia into provisionally extending the deal, even if Russia itself wasn’t in adherence.
That the suggestion that oil prices were heading for a drastic drop was coming from Russia is an eye-opener. The major oil producer has been dragging its feet over meeting its commitments on the current supply deal; it was seen as capitalising on Saudi Arabia and its close allies’ pullback over February and March. That Russia eventually reached adherence in May was not through intention but accident – contamination of crude at the major Druzhba pipeline which caused a high ripple effect across European refineries surrounding the Baltic. Russia also is shielded from low crude prices due its diversified economy – the Russian budget uses US$40/b oil prices as a baseline, while Saudi Arabia needs a far higher US$85/b to balance its books. It is quite evident why Saudi Arabia has already seemingly whipped OPEC into extending the production deal beyond June. Russia has been far more reserved – perhaps worried about US crude encroaching on its market share – but Energy Minister Alexander Novak and the government is now seemingly onboard.
Part of this has to do with the macroeconomic environment. With the US extending its trade fracas with China and opening up several new fronts (with Mexico, India and Turkey, even if the Mexican tariff standoff blew over), the global economy is jittery. A recession or at least, a slowdown seems likely. And when the world economy slows down, the demand for oil slows down too. With the US pumping as much oil as it can, a return to wanton production risks oil prices crashing once again as they have done twice in the last decade. All the bluster Russia can muster fades if demand collapses – which is a zero sum game that benefits no one.
Also on the menu in Vienna is the thorny issue of Iran. Besieged by American sanctions and at odds with fellow OPEC members, Iran is crucial to any decision that will be made at the bi-annual meeting. Iranian Oil Minister Bijan Zanganeh, has stated that Iran has no intention of departing the group despite ‘being treated like an enemy (by some members)’. No names were mentioned, but the targets were evident – Iran’s bitter rival Saudi Arabia, and its sidekicks the UAE and Kuwait. Saudi King Salman bin Abulaziz has recently accused Iran of being the ‘greatest threat’ to global oil supplies after suspected Iranian-backed attacks in infrastructure in the Persian Gulf. With such tensions in the air, the Iranian issue is one that cannot be avoided in Vienna and could scupper any potential deal if politics trumps economics within the group. In the meantime, global crude prices continue to fall; OPEC and OPEC+ have to capability to change this trend, but the question is: will it happen on June 25?
Expectations at the 176th OPEC Conference
Global liquid fuels
Electricity, coal, renewables, and emissions
Source: U.S. Energy Information Administration, U.S. liquefaction capacity database
On May 31, 2019, Sempra Energy, the majority owner of the Cameron liquefied natural gas (LNG) export facility, announced that the company had shipped its first cargo of LNG, becoming the fourth such facility in the United States to enter service since 2016. Upon completion of Phase 1 of the Cameron LNG project, U.S. baseload operational LNG-export capacity increased to about 4.8 billion cubic feet per day (Bcf/d).
Cameron LNG’s export facility is located in Hackberry, Louisiana, next to the company’s existing LNG-import terminal. Phase 1 of the project includes three liquefaction units—referred to as trains—that will export a projected 12 million tons per year of LNG exports, or about 1.7 Bcf/d.
Train 1 is currently producing LNG, and the first LNG shipment departed the facility aboard the ship Marvel Crane. The facility will continue to ship commissioning cargos until it receives approval from the Federal Energy Regulatory Commission to begin commercial shipments. Commissioning cargos refer to pre-commercial cargo loaded while export facility operations are still undergoing final testing and inspection. Trains 2 and 3 are expected to come online in the first and second quarters of 2020, according to Sempra Energy’s first-quarter 2019 earnings call.
Cameron LNG has regulatory approval to expand the facility through two additional phases, which involve the construction of two additional liquefaction units that would increase the facility’s LNG capacity to about 3.5 Bcf/d. These additional phases do not have final investment decisions.
Cameron LNG secured an authorization from the U.S. Department of Energy to export LNG to Free Trade Agreement (FTA) countries as well as to countries with which the United States does not have Free Trade Agreements (non-FTA countries). A considerable portion of the LNG shipments is expected to fulfill long-term contracts in Asian countries, similar to other LNG-export facilities located in the Gulf of Mexico region.
Cameron LNG will be the fourth U.S. LNG-export facility placed into service since February 2016. LNG exports rose steadily in 2016 and 2017 as liquefaction trains at the Sabine Pass LNG-export facility entered service, with additional increases through 2018 as units entered service at Cove Point LNG and Corpus Christi LNG. Monthly exports of LNG exports reached more than 4.0 Bcf/d for the first time in January 2019.
Source: U.S. Energy Information Administration, Natural Gas Monthly
Currently, two additional liquefaction facilities are being commissioned in the United States—the Elba Island LNG in Georgia and the Freeport LNG in Texas. Elba Island LNG consists of 10 modular liquefaction trains, each with a capacity of 0.03 Bcf/d. The first train at Elba Island is expected to be placed into service in mid-2019, and the remaining nine trains will be commissioned sequentially during the following months. Freeport LNG consists of three liquefaction trains with a combined baseload capacity of 2.0 Bcf/d. The first train is expected to be placed in service during the third quarter of 2019.
EIA’s database of liquefaction facilities contains a complete list and status of U.S. liquefaction facilities.