Market Report: Spain a strong contender for spot cargoes, as winter fails to bite in Far East
Europe is still a strong competitor for the world’s few LNG spot cargoes, as winter fails to bite in South Korea and Japan so far.
Spanish demand is still strong on demand from the generation sector, and traders reported this week that utilities have had to pay above the benchmark British NBP to attract extra gas. Luckily for Spanish buyers, the US price remains in the doldrums, and the country can at least find cargoes from Trinidad & Tobago – part of the general swill eastwards of the world’s LNG this winter.
Northern European benchmarks at the NBP and Zeebrugge showed some sign of weakness, as warm weather continued, but the ever-present threat of production outages was realised again, when the giant Ormen Lange field went down in the early hours of Friday. The outlook, notwithstanding a prolonged outage there, is stable to bearish however, on high stocks.
LNG production news was bullish, as Snøhvit suffered even more start-up problems. The news that the first Q-Flex vessel was loading at Ras Laffan this week was more or less neutral, as it does not signal new production coming onto the market. If anything, it was thought to be bearish for the spot vessel charter rate.
Spanish generators forced to pay up
LNG traders said they had been able to sell into Spain at a premium to Britain’s NBP benchmark for the end of November and December. Prices appear to have varied slightly, depending on the exact week and on the company, but there had been occasional “panicky” demand from Spain, sources said. The three major generation companies – Endesa, Union Fenosa and Iberdrola – were all heard to have been looking for spot LNG recently. “Price expectations vary,” one seller commented. “But, on average, I’d say they have been paying above the NBP.”
“They know they are having to pull cargoes away from northern Europe at this stage, as well as compete with the netback from Asia,” another trader said.
The strong Spanish gas demand in recent weeks has largely been a result of low hydro stocks and wind production. Reservoir levels nudged up only very slightly in the last week, but were 33% below levels at the same time last year, and 18% below the five-year average. Demand from Spanish CCGTs is also higher in general, due to new build this year. The power price remains high, meaning it is still profitable to burn gas, and strong coal prices make gas the fuel of choice at the moment.
There was no clear direction on the Spanish power market this week, and prices held, although sentiment was bearish, if anything, on the near-dated contracts, due to forecasts of healthy wind generation and milder weather. Eleven tankers had berthed in the week to 25th November, but network operator Enagas was only predicting seven more would arrive before the end of the month. There would be less LNG spot demand in Spain right now if utilities had not diverted some of their LNG to the Far East already.
Asian negotiations ongoing, but no surge as yet
Buyers in Japan, Korea and Taiwan are showing no signs of panic still this winter, sources agreed this week. Japan is widely reported to have fixed most of its extra demand months ahead of delivery. “Discussions are still taking place for January,” one Asian broker commented. “But at the same levels you have been reporting for the last few weeks. $13.50/MMbtu seems to be a sort of ceiling so far.”
Others commented that inventory levels remain high because there has not been a prolonged cold spell so far in Japan or South Korea, but this could change quickly.
“If we have a couple of weeks of cold weather, we know Korea will pay any price to get the gas,” one trader said.
Indian demand continues unabated, one of the spot sellers into the region reported. He declined to give specific price details, but said that “buyers east of Suez are aware of the other buyers east of Suez”. The Dahej terminal has been operating at maximum capacity, and the Shell/Total terminal at Hazira has been taking a steady two cargoes per month so far this winter.
Excelerate’s new US terminal ready in days
Excelerate Energy’s new Northeast Gateway project will be ready “in a matter of days”, according to the company’s c.e.o., Rob Bryngelson.
He told Heren Energy on Friday: “Construction is complete; we’re just finalising some operating manuals and security plans.
“We think we’ll be able to bring something in before the end of [December],” he said. This would be on schedule, according to the company’s latest communications.
Excelerate secured a cargo from BP in Trinidad & Tobago in November, but this has already been sold into the Far East, Bryngelson confirmed. The cargo was not offered in an open tender, and he declined to comment on the price of the deal. The cargo loaded on 21st November on board the Excellence.
There were rumours this week that another cargo is available from Trinidad & Tobago for December loading, but Bryngelson could not confirm this on Friday. He said the company had not yet secured a cargo for the commissioning of the Northeast Gateway terminal.
Unfortunately, the US is currently the lowest-priced spot delivery option globally. “It is the most horrible option,” one trader commented this week. Bryngelson said this could mean the company uses a “creative” option for the first delivery: “We could only partially unload and sell the rest of the gas into another market.” This was the strategy adopted by the company when it commissioned its offshore terminal at Teesside in the UK. Only a minimal amount of gas was unloaded, and the terminal has since been dormant.
Northern Europe bearish, but held up by Norwegian outage
Terminals in northern France, Belgium and the UK are still in the game for some spot volumes, after a bullish start to the winter. But spot cargoes continue to arrive at a trickle, rather than a flood, as supply is tight, given the general global swing towards the Far East. The emergence of urgent spot demand from Spain has also kept extra imports at a low level in the past two weeks.
Prices in the UK and Zeebrugge started to fall heavily on Thursday, having drifted down all week, as relentlessly warm weather started to eat into demand and demand projections. The pipeline between Belgium and the UK continued to switch direction, with hardly any flow in either direction. Britain and the continent were not competing for gas – a scenario that has resulted in October and November price spikes in previous winters – as stocks are high and weather warm across the whole region.
The UK does have higher baseload imports from the continent this winter, through the BBL pipeline from the Netherlands and the Langeled pipeline from Norway. The Dutch imports have been steady, but Norwegian flows have been volatile, and had been keeping the market nervous.
In another illustration of their influence on the UK price, the prompt bounced up again sharply on Friday morning, as StatoilHydro cut flows by half. The Ormen Lange field, which has been feeding into the pipeline since October, went down in the early hours of Friday morning. Friday’s Within-day market surged by nearly $1/MMBtu, when trade started on the news. StatoilHydro did say the field should be back in operation by Sunday, however, and the Q1 ’08 market did not react strongly, indicating the generally bearish outlook at present in the UK, due mainly to high stock levels.
BP filled both of its slots in the Isle of Grain terminal in November with gas from Trinidad & Tobago. The British Innovator arrived at the terminal on 29th November, on schedule. The next slot on 5th December has not been offered on the Grain Agency website, indicating it will also be filled.
Most companies with production in T&T are looking for any alternative to the depressed US market. BG has diverted some cargoes into Spain, but the sale to Distrigas, on board the Methania, will finally arrive at Zeebrugge, rather than the Mediterranean, as traders had expected last week. The Zeebrugge Port Authority now shows an arrival date of 1st December. This is an extra cargo for the Belgian incumbent, on top of its regular deliveries from Qatar (every 11 days). The next of the long-term contract cargoes is scheduled to arrive on 6th December, on board the Umm Bab. The extra delivery has seemingly come at a good time for Distrigas, just as the spot price slide has been halted by the Ormen Lange outage, and the Interconnector has switched back to UK imports.
More bad news at Snøhvit
There was more bad production news from Norway this week, as StatoilHydro confirmed yet more problems at its Snøhvit liquefaction project. The third cargo is now unlikely to load before Christmas, a spokesman at the company said on Wednesday. A leak was detected in the heat exchanger on the cooling apparatus, and this is now being fixed.
“Hopefully, we’ll be back on stream in a couple of weeks ... maybe a bit later,” the spokesman said. “Then the third cargo should start loading mid-December, and depart around Christmas time.”
The company is still aiming to have regular commercial deliveries by January next year, but this seems increasingly unlikely. At full capacity, the liquefaction plant would produce four to five cargoes a month.
The first cargo from Snøhvit loaded in the third week of October, several weeks later than expected, on board the 147,200 m3 Arctic Princess. It was delivered into France’s Montoir terminal. More delays then ensued, and Total’s cargo was finally loaded onto the 147,208 m3 Arctic Lady in the second week of November. This cargo is destined for Spain, according to data provided by Lloyd’s MIU, but it is still not clear when and where exactly the vessel will arrive. Total declines to comment.
The third cargo is to be loaded on board the 140,000 m3 Arctic Discoverer, which is waiting off the northern coast of Norway. The vessel is under charter to Statoil, Hess and RWE Dea.
Along with Statoil ASA, the Snøhvit LNG partners are Total (18.4%), GDF (12%), Petoro (30%), Amerada Hess Norge (3.26%) and RWE Dea Norge (2.81%).
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