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Market report: East Asia keeps market buoyant

28 Jan 2011 21:12:28

A recent fall in the NBP, as a result of milder temperatures, was cancelled out by increases in Asia. Indonesia's Pertamina detailed plans to supply another 24 cargoes in summer.

In addition to competition for summer volumes, east Asian buying interest has firmed up recently on the prompt, with Kyushu Electric, TEPCO and Shanghai LNG all reportedly among the buyers. However, Argentina's ENARSA left the market underwhelmed with only a two-cargo tender for March delivery.

The NBP lost $0.15/MMBtu over the course of the week to close at $8.73/MMBtu on Thursday. One trader attributed the falling NBP price to last week's storage injections, driven by milder weather, which "took some of the fear out of the market".

Further bearish sentiment was provided by the Office for National Statistics (ONS), which reported a 0.5% contraction in the country's economy in Q4 2010, well below expectations of 0.2 to 0.6% growth.

The bearish signals failed to stem the recent high level of spot deliveries continuing into February.

At the end of the week, Statoil's 147,000m³ Arctic Princess set a course from Nigeria's Bonny Island and is expected to arrive at the Dragon terminal on 8 February. The vessel was set to become the second NLNG cargo at the Welsh terminal in two weeks, after the 140,000m³ Golar Viking arrived on Friday. The Golar Viking has been on charter to Shell, although one source reported the vessel was sub-chartered to BG Group.

The Isle of Grain also took delivery of a cargo loaded in Nigeria: the 137,000m³ LNG Rivers arrived on Friday in a deal linked to utility Centrica.

Early next month, the RasGas Q-Flex vessels Umm Al Amad and Al Kharsaah are expected to arrive on 2 and 4 February, respectively. According to traders, the former will be delivered to E.ON and the latter to Merrill Lynch Commodities, although this could not be confirmed. Beyond that, the 165,000m³ Total-controlled Maersk Marib is due to arrive at the Isle of Grain on 12 February from Yemen, according to IHS Fairplay AISLive data.

The dearth of available supply in the Atlantic Basin has led buyers with capacity in Continental Europe to attempt to divert those cargoes currently earmarked to British terminals. However, current offers - of around 96% of NBP - were insufficient for UK capacity holders to unwind deals, participants said.

Nevertheless, one vessel that had been due to arrive in the UK, the 138,000m³ GDF SUEZ vessel BW Suez Boston, was diverted to southern France's Fos Cavaou terminal, according to port authority data.

Pertamina's new supplys

East Asian buyers were able to contemplate more summer buying, as Indonesia's Pertamina revealed plans to market a further 24 spot cargoes in 2011, in addition to the ongoing six-cargo tender, following the closure of the Darwin tender on Tuesday,

The 24 cargoes would be offered on a tender basis later this year, a source at upstream regulator BP MIGAS told ICIS Heren. The source added that the cargoes will be grouped in tranches of three or six.

In the short term, east Asian buyers have begun planning for the Pertamina tender in order to secure spring and summer volumes, following the closure of the tender from Darwin LNG.

The seven-cargo Darwin LNG tender itself was understood to have attracted more offers from traders than end-use buyers on the back of the recent rise in east Asian price expectations above $10.00/MMBtu, a source said.

South Korea's KOGAS has declined to participate, as the state-linked company expects to be able to find lower-priced spot LNG from other sources during Q2 2011. In addition to regional utilities, several utilities in Europe are understood to have placed bids.

A CPC source also voiced concerns about bidding at this stage for summer volumes, due to price uncertainty.

The Asian utilities that did participate are understood to have bid at levels of 50-60% of JCC , rather than linking them to the perceived volatility of the NBP.

March competition heats up in Asia

Pricing expectations in Asia for March delivery have increased, with prices for the month gaining clear water above $10.00/MMBtu.

In Japan, falling temperatures in the south and west of the country combined with power outages to bring buyers into the market.

A recent spot enquiry from Kyushu Electric Power for a short-term cargo is understood to have been filled by a trader in the region. In addition, negotiations for a March cargo were understood to have accelerated over the past few days, and Kyushu agreed to pay "slightly under $11.00/MMBtu" to get a cargo that ICIS Heren understands will be sourced in the Pacific Basin.

An imminent shutdown of a coal-fired plant and another recent unexpected shutdown of Kyushu's 700MW No 2 coal-fired unit at its Reihoku power plant in Kumamoto prefecture, have contributed to the company's requirement for spot cargo, a Japan-based source said.

However, a more representative price was provided by Japan's Tokyo Electric Power (TEPCO), which secured a cargo for March delivery at about $10.10/MMBtu, an east Asian trading source told ICIS Heren.

"TEPCO has huge storage capacity, and the purchase was to top up its stocks, rather than a need to meet additional demand," another trader said.

In Taiwan, CPC has closed a tender for one to three cargoes for delivery in March. ICIS Heren understands that this is part of the state buyer's intended move to begin procuring summer cargoes in early spring.

The cargo was likely to be awarded to a portfolio player, multiple sources told ICIS Heren.

"Recent tenders from them [CPC] have been on a closed basis, and I expect the usual suspects of either BG, Gazprom or Shell to win this one, too," a trading source active in east Asia said.

Some traders were also expecting the price for the cargo to be slightly below $10.50/MMBtu.

Taiwan's LNG-buyer CPC expects to maintain spot demand on the back of strong economic growth and greater need for natural gas from the power generation sector. "Our customers from the power generation sector asked us to make the purchase, as they needed more LNG in March to use as feedstock for electricity production," a source from CPC told ICIS Heren. "Ordinarily, they could switch to fuel oils or other alternatives, but for the moment, LNG is cheaper and, as a result, the requirement has grown."

The monopoly buyer said it intended to turn to Atlantic Basin suppliers in an attempt to secure more competitive prices.

South Korean buyer KOGAS also cited plans to tap the Atlantic Basin as it attempts to meet limited requirements for March. A source from the company told ICIS Heren that it expects a two-cargo requirement for the month unless the cold weather continues.

"While the weather is expected to be warmer in February, we are working with a scenario of -2 to -3e_SDgrC, so we are keeping our options open," the KOGAS source said.

In China, Shanghai LNG, a 55:45 joint-venture between Shenergy Group and China National Offshore Oil Corp (CNOOC), purchased a cargo for early February delivery from Gazprom's Sakhalin capacity at about $10.25/MMBtu.

The buyer, which has concluded several Master Sales Agreements (MSAs) in the course of the last few months, responded to a fall in temperatures in the eastern Chinese city.

East Asia buyers also cited competition for Middle East and Atlantic Basin cargoes from India's Petronet, which has announced plans to procure four cargoes in the first quarter.

One source linked the buyer with a $9.40/MMBtu deal to secure an Atlantic Basin cargo, but this could not be confirmed.

Shipping limit on US Gulf re-exports

The outlook for US re-exports waned slightly this week, as Repsol revealed details of its 15-month sales agreement with KOGAS that would see cargoes diverted to Asia (see separate story), while lack of shipping availability also constrained activity.

Interest remains in US Gulf re-export plays, a trading source said, but restrictions regarding who is able to pick up the cargo has limited the volume of interest, amid tight shipping.

However, activity continued in the short term with the 173,400m³ Valencia Knutsen expected to unload Peruvian volumes at Freeport on 1 February, according to US Coast Guard records.

It is understood Excelerate will lift those volumes, but the transaction could not be confirmed. The deal would mark a fourth reload transaction from Freeport between Excelerate and ConocoPhillips since December 2010.

Bids for US Gulf re-exports were placed at about 85% of NBP, while offers were put in the high-80s% of NBP, according to sources.

Chevron has volumes available at Sabine Pass after a Q-Flex delivery, sources said, however, the prospects of a reload opportunity from JP Morgan/Cheniere Marketing at the terminal have evaporated.

UK-based trading firm Vitol has chartered the 177,000m³ Ben Badis, which recently loaded a re-export cargo from Sabine Pass. Speculation on the vessel's destination centred on Greece, while AISLive shipping data said it is heading for the Mediterranean.

The 140,000m³ Arctic Discoverer also left with a re-export cargo from Sabine Pass, with Spain as the expected destination. The Statoil-controlled ship will bring the cargo to Iberdrola to fulfil its supply obligations, a source said.

ENARSA tender for March cargoes

Argentina's gas incumbent ENARSA has released a tender to attract two cargoes into its Bahía Blanca terminal during April, sources told ICIS Heren.

Further details of the process could not be confirmed, including the number of participants invited. During ENARSA's previous tender, which encompassed November '10 to March '11, only Gas Natural, Repsol, Morgan Stanley, Marubeni and Excelerate were cited as serious bidders.

"I had understood that they had been looking for longer-term commitments," a trading source in the Americas said.

The single-month tender from ENARSA fell short of expectations of a tender seeking larger volumes on a longer-term basis.

In Brazil, increased hydroelectric output stemming from the ongoing heavy rainfall in the country has left Petrobras in a position to potentially sell reload volumes from both its terminals. A source close to the company said Petrobras had recently been in discussions with different participants to lift a cargo from the Pecém or Guanabara Bay terminals.

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