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Corrected: Nuclear restart approval fails to check east Asia price pressure

17 Apr 2012 13:15:07 | glm

(This article originally included an error in the 22nd paragraph concerning the price Brazilian state oil and gas company Petrobras was reported to have paid for a spot LNG import cargo.

It was reported that Petrobras paid close to NBP plus $15/MMBtu for a cargo. The reference to the NBP premium was erroneous and inaccurate.

ICIS apologises for any inconvenience caused by this error. A corrected story follows).

Price expectations for June cargoes into east Asia rose above $16.50/MMBtu this week as the impact of a series of plant outages and competition from South America began to bite.

The Japanese government's decision on Friday to grant the final approval to Kansai Electric to restart its No 3 and No 4 reactors at its Ohi nuclear power plant - which would reduce its LNG demand by around 2m tonnes per annum (mtpa) - offered the country's beleaguered electricity utilities renewed hope that it would trigger further restarts.

The market's response, however, was muted because of the expected three-month lag before operations resume, confirming the prospect of an almost nuclear-free peak summer period. As a result, traders' attention remained focused on the continued impact of extensive planned and unplanned plant outages which filtered through to offer levels into east Asia.

Although bids for the second half of June, which remains the most liquid period on the near curve, rose to $16.20-16.50/MMBtu in Japan, this was not attractive enough to tempt sellers into the region, according to traders who said Atlantic Basin sellers could receive better netbacks from South American buyers.

"I think that the buyers in Asia are not used to the idea of competing for summer volumes. The prices paid elsewhere are strong enough to pull volumes away from Asia," one trader active in Asia said of the market this week. Price expectations for the first half of July also climbed towards $17/MMBtu as traders who had taken a short position on July began to search for LNG to bridge the supply gap.

Sellers scramble for supply

Traders said that the tight supply picture had left only Nigeria LNG and the BP-operated Tangguh LNG facility in Indonesia firmly in the market, leaving portfolio participants competing for scarce spot volumes.

The Tangguh consortium was said to have delayed its tender for up to five cargoes on a DES (delivered ex-ship) basis from the start of the month to two weeks later. The reasons for this were unclear, but according to market sources, Tangguh is still in discussions with its long-term buyers.

Meanwhile, volumes from Nigeria LNG are widely agreed to be available for June delivery. Some traders attempting to arrange a back-to-back transaction are said to be bidding at $16.50/MMBtu and offering into Japan at $16.60-16.80/MMBtu, according to one source.

Some of the bidders for Nigerian volumes are likely to be covering a short position in Asia or the Middle East, sources said.

"Shell was in negotiations with one of the Italian offtakers in Nigeria for a cargo to cover a short [position] in Kuwait," said one trader.

Another trader said the four-cargo gap that was caused by an outage at the Yemen LNG facility is likely to be filled in the spot market as well.

Further out on the curve, volumes could theoretically come from the Angola LNG plant. Although a timeline for full commercial operation remains unclear, the 160,400 cubic metre (m³) Lobito and the 160,400m³ Soyo dedicated to the 5.2mtpa facility are returning to the west coast of Africa for what sources said is a re-positioning of the project's tonnage in anticipation of initial LNG production.

Traders explore Europe reloads

With an overall tightening supply in the short term, the number of sellers looking at reload opportunities from European terminals to cover short positions was said to be increasing. UK-headquartered portfolio supplier BP's move to bring the 138,517m³ British Merchant into Zeebrugge on 15 April for a potential reload came after an unexpected "process upset" caused an indefinite shut-in at Train 4 at the Atlantic LNG plant in Trinidad.

Although annual maintenance at Train 4 was brought forward to commence on 23 March, sources said that Atlantic LNG has declared force majeure on deliveries and there remains no indication as to the length of the shutdown. While participants said that there were enough vessels available to charter to facilitate further reloads from Europe, it is the availability of volumes coming into the terminals - and whether they have been directly impacted by the plant outages - that will determine the extent of short-term reload activity, traders said.

In terms of reload availability at European terminals, Spain is more likely to re-export some of its cargoes before the next Zeebrugge reload, despite the higher costs in sourcing the gas and terminal fees.

The 138,000m³ Catalunya Spirit, controlled by Gas Natural Fenosa, lifted reload volumes from the country's Reganosa terminal for a scheduled delivery to Argentina, sources said. The vessel is scheduled to berth Argentina's Bahía Blanca on 22 April. At Cartagena, the 145,000m³ LNG Ebisu, which is understood to be under the control of Spain's Iberdrola, will load what is believed to be a re-export cargo at the Spanish terminal for delivery to Japan, according to port data.

South America steps up spot hunt

Global prices this week were well supported by a step up in demand from buyers in South America with participants expected to tap the market for a minimum of 10 spot cargoes in the coming months.

This is expected to create competition between the three importing countries - Argentina, Brazil and Chile - during the region's peak winter demand months.

Argentinean gas incumbent ENARSA closed a tender on Thursday for five cargoes from May to August at its Bahía Blanca terminal and about five cargoes over the same period for its Escobar facility.

The state-run firm received offers from Italy's Eni and Switzerland-based trader Trafigura for Bahía Blanca, ICIS understands. Eni is understood to have made an offer for July at around $15/MMBtu, which is below ENARSA's cap of Henry Hub plus $13/MMBtu. One trader speculated that the Italian company had submitted a competitive offer as part of a strategy to gain entry to Argentina. ENARSA did not receive any offers for supply into its Escobar terminal, ICIS understands.

Brazil's state oil and gas company Petrobras continues to provide stiff competition to ENARSA in an effort to secure spot cargoes to fill a gap left by a fall in hydro levels.

The company was heard to have paid close to $15/MMBtu for another import cargo, which sources speculated would be coming from a BG Group Trinidad-sourced cargo that the UK-based company won in a recent PFLE tender. BG Group is thought to have used the 145,000m³ Methane Shirley Elisabeth to lift the cargo. However, the deal could not be confirmed.

Petrobras along with Swiss-based trading firm Vitol have been competing for the charter of Shell-controlled 135,000m³ Gallina.

"Both companies have very prompt requirements. I think they are very careful about how they proceed with them. This vessel could be used for lifting FOB volumes. Both companies had access to FOB volumes in Qatar before," one trader said.

In the meantime, the expected delivery of the Q-Flex Al Aamriya for Petrobras is understood to be a RasGas diversion from the Qatari company's position at the Zeebrugge terminal, according to port data.

The vessel was scheduled at Zeebrugge on 13 April, but sources speculated that RasGas and London-based EDF Trading (EDFT) negotiated the diversion to pre-empt an eventual reload from the Belgian terminal.

China probes for prompt volumes

The CNOOC-operated Guangdong LNG terminal could re-enter the spot market for volumes towards the end of June, according to some sellers who said the buyer is likely to purchase one or two cargoes ahead of the stronger demand season in southern China.

Guangdong suffered a disruption to its long-term contract deliveries from two of its suppliers, as outages at both Woodside's North West Shelf project and Yemen LNG were said to have left the company low on inventories. While a buying source speculated that the company may be able to organise a swap to cover its requirement, others said this would prove difficult given the tight availability of prompt volumes in the market. Sources close to CNOOC said there is no clear requirement from the south of China as yet, although much would depend on the power demand and the temperatures in the region going forward.

GAIL tenders for Dabhol volumes

In India, the country's state-owned network operator GAIL opened a tender for three cargoes to be delivered to the newly commissioned Dabhol terminal in the western state of Maharashtra, ICIS understands.

The terminal was understood to have received its first commissioning cargo, which had been held up by issues with the shallow navigation channel at the entrance to the terminal. US-based trader Excelerate Energy loaded the Snøhvit-sourced commissioning cargo on the 138,000m³ Excelerate on 6 March, and the vessel had been anchored outside the terminal from 25-26 March.

The specific delivery windows for the cargoes under the tender were not identified.

Charter rates slip on tight supply

The extended maintenance outages had an impact on this shipping markets this week. Although the tight supply scenario has given rise to more short-term shipping options over the period, it has simultaneously removed the need to charter additional tonnage.

There are only three modern vessels available to make the cross-basin run at the moment - the 140,000m³ Golar Arctic, 146,000m³ Golar Maria and 138,000m³ Excel - as charter times were limited to 30-40 days, sources said. However, there has been limited interest in these three vessels, since the cost to extend the period of charter is as high as $140,000/day. Overall, some 18 vessels are available for charter, according to one shipping source, who said that long-term rates are coming down to a more reasonable $100,000-130,000/day.

"Some owners are starting to cooperate with the lower rates to utilise their ships, but traditional owners still try to keep the rates high," a Singapore-based trader said.

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