Sellers hope for new Asian demand and continued support for European prices
LNG spot traders are getting ready for a potentially active winter of diversions and trade. The Far East is still the highest priced market but Japanese demand has largely been covered now for January and February.
Spot prices paid so far for the peak of winter are heard to have stayed in a range of $12.00-12.50/MMBtu. Whether they climb higher will depend largely on how much demand comes out of South Korea for its peak winter season.
A source at Kogas told Heren Energy this week that no concrete deals had been done yet but that buying may start in the next two weeks:
“We are taking our time and monitoring the market situation, trying to identify what we need. Up to now there is not much progress [on buying spot cargoes].” He also said Kogas did not have the shipping capacity to store cargoes at sea, another reason why they’re not bidding for current tenders. He said spot buying would depend on the weather and the strength in the European market.
The Kogas source’s comment is interesting in that Europe and the Far East are expected to be the main markets for any flexible gas this winter. If more demand does not kick in from the Far East, traders are now assuming that most production from North and West Africa will end up in Europe as usual. Production from the Middle East is still expected to be drawn mainly East, with little spare production available for Europe at this stage.
The NBP price for January is $9.76/MMBtu, $1.76/MMBtu above the NYMEX January contract. Asian buyers looking to draw in more cargoes now for January from North Africa would have to pay close to $13.00/MMBtu to attract gas away from Europe, some sources said this week, but there have been no deals confirmed at that level so far.
“There is no sign of desperate demand at this stage,” one trader commented. Of course the balance between the three regions (US, Europe and Asia) could change very quickly if there was a new supply/demand imbalance in Korea or Japan during the winter.
Confidence growing in Isle of Grain deliveries
Production from Trinidad & Tobago (T&T) that usually ends up in the US may be diverted into Europe instead if the price premium of the NBP over the Henry Hub remains. There were rumours this week that BP was going to take a cargo from T&T to the Isle of Grain on board the 138,000 m3 British Innovator. None of BP and Sonatrach’s September slots at Grain were filled. The next slot is on 7th October and had not been offered to the secondary market as of 28th September, but in any event the capacity holders only normally post the offers seven days in advance.
Speculation over how much gas may arrive in Europe this winter was fuelled by a bull run on the UK’s NBP at the beginning of the week. Norwegian gas is still not arriving in any significant volume on the NBP hub, which is what it would take for the market to lose its jitters and for the spot price to come down.
Instead, although the giant Ormen Lange field has started testing, the UK system has gone short at times this week as there have been other unplanned outages and colder weather, making traders nervous for the winter. Winter ’07 hit its highest price this year at 50.35 p/th ($10.2/MMBtu) on Monday, 24th September. The gains were not sustained and gas came out of storage to balance the system. But if prices remain at that level, LNG traders expect a large proportion of the Grain slots to be filled. BP also has US terminal capacity, giving it the flexibility to hedge LNG on the NBP but deliver to the US should the price pattern change during the winter.
Algeria’s Sonatrach has become much more flexible this year, delivering regularly into the US and Asia instead of plying its normal routes to Europe. But one Asian buyer commented that Sonatrach has so far held off from fixing winter supply ahead of time to Far Eastern buyers, instead holding out in the hope that they will be forced to pay higher prices as the season wears on. If extra demand does not appear, the Algerian state-owned company will presumably be selling all of its volume into Europe.
Zeebrugge capacity open as Montoir fills up
Deliveries into Zeebrugge look set to continue at their summer pace during October as EDFT, the other capacity holder in the terminal apart from Distrigas, has offered its slots on the secondary market. Terminal operator Fluxys is showing offers for slots on the 8th October, 19th October, 30th October and 10th November on its website.
There are six slots a month on average at Zeebrugge, divided equally at the moment between Distrigas and the ExxonMobil/Qatargas partnership. The latter gave its slots to EDFT as part of deal earlier this year for the French trading company to market up to 4.5 Gm3/year of LNG for RasGas at Zeebrugge. RasGas has the right to sell the gas into higher priced markets however, and nothing has so far arrived in Belgium as a result of the deal. EDFT also has the option to deliver into other ports if it is given a cargo.
The last delivery into Zeebrugge was again part of the Distrigas long-term contract from RasGas. The Ejnan arrived on 22nd September and the next delivery under the contract is scheduled on 2nd October on board the 145,000 m3 Al Thakira, keeping the regular eleven day spacing.
EDFT looks to be getting more action at France’s Montoir terminal however, where it expects to use all of its capacity this winter. The company has an average of 12 slots a year and has a deal with Japan’s Mitsui to source gas for the terminal. Heren Energy understands that the alliance will bear its first fruit this winter, with a cargo from Norway’s Snøhvit project (once it starts up).
Snøhvit deliveries may reflect increasing LNG trading flexibility
While Norway’s Snøhvit project is still undergoing a tricky commissioning phase (see separate story), the picture of where the gas will eventually end up is also complicated. While the LNG is contracted into Spain and the US, trading sources said this week it may yet end up in the Far East.
Ship owners have had requests for spot charters to load in Snøhvit, despite the fact that the equity holders have a dedicated fleet for the project. This is thought to be because of plans to take longer journeys than expected, into Asia.
Statoil is due to take the first cargo, but the destination is not yet known. Market sources had presumed the cargo would go to Spain’s Bilbao terminal for Iberdrola, but Iberdrola is known to be one of the most proactive diverters to the Far East on the Spanish market.
The second cargo is scheduled to be taken by Total, into Altamira in Mexico or Spain. The third is scheduled to go into Montoir (see above).
Spanish demand low
Traders have reported constant diversions from Spain to the Far East since July, but they have also seen some deals in September to backfill some of the spaces left. Demand remains generally low in Spain however: only five tankers berthed at the terminals during the week to 23rd September, according to network operator Enagas, with another eleven vessels expected until the end of the month. Hydro stocks are higher than they were at this time last year and nuclear capacity is also high, depressing power prices and gas demand.
There are some upstream problems reported at the Damietta plant in Egypt which may be affecting deliveries to Spain’s Union Fenosa. One of the equity holders said on Friday that there had been production problems for some time, but declined to give details.
A BG spokesman could not confirm or deny on Friday whether its offtake from Damietta had been reduced or whether there were production glitches at its own fields feeding into the plant. Nor was Union Fenosa available for comment. If there are any significant problems, it could limit Spain’s diversion capability for the rest of the winter, or if Spanish companies have already sold ahead to Asian buyers, it could suck extra cargoes from the Atlantic Basin to backfill.
The Damietta LNG plant is owned by Spanish Egyptian Gas Co. (SEGAS) - a joint venture between Union Fenosa and Eni. The plant has the capacity to process 7.6 billion cubic meters of gas/year. BG Gas Marketing has a deal to take about 700,000 tonnes/yr of LNG from the plant.
China’s Guangdong out of the spot race
China’s CNOOC took two spot cargoes in September to the Guangdong Dapeng terminal – both from Nigeria. Shell is scheduled to deliver another spot cargo, this time from Algeria on board the 134,425m3 Galea on 5th October.
But a source at the terminal said no more spot cargoes were expected in October. “The price is too high now,” he said. In addition, he said demand in the region in the south of China would be lower in winter. The local government has also been providing temporary incentives during summer for the terminal’s customers to burn gas, instead of oil. These subsidies will not be provided in winter, a source familiar with the region said this week.
More gas is being offered out of Nigeria, with a cargo to load on 10th October, but rather than an open tender, sources said it was being offered to stakeholders.
Spot charter rates still firm but new vessels on the market
There was no sign of a crash in spot charter rates this week as diversions continue to keep vessels on longer journeys than originally scheduled. On the other hand, new vessels coming onto the market mean there hasn’t been a sharp spike in price.
The 150,000 m3 Grace Barleria from NYK came onto the market early last week and was reportedly offered for a short-term charter at $72,000/day. Dynacom’s 149,700 m3 Clean Force has also come onto the market, although it was though to be offered at a lower rate than the NYK vessel. The 138,830 m3 Golar Frost is being redelivered this weekend after its charter to Shell and is also being offered to the market.
Cheniere Energy has fixed the Shell-owned Galeomma on short-term charter, starting in fourth quarter 2007. The US company plans to use the vessel to start commissioning on its Sabine Pass terminal in the US in February 2008.
Other Related Stories