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East Asia LNG prices continue to rise on tight supply

01 May 2012 10:30:56 | lmd

Prices continue to rise in east Asia and buyers said that the constrained global supply situation is the main driver of the increase in price expectations.

Other than three cargoes currently on offer by Nigeria LNG (NLNG) through a tender, no spot supply was seen for the short term.

As a result, a few bids for delivery to Japan in the second half of June were seen at $17.70-17.80/MMBtu, while offers were at around $17.90/MMBtu.

Kansai Electric, Osaka Gas, Kyushu Electric and Tokyo Electric Power (TEPCO) were identified by traders to be among the Japanese utilities with spot requirements for the second half of June and the first and second half of July.

In addition, South Korea's independent LNG buyer GS Caltex is in the market for a cargo for delivery in the second half of June.

A trader said the bid from GS Caltex at around $16.50/MMBtu was not competitive enough to attract sellers.

"The sellers can find a buyer willing to pay at least a dollar above that rate," said a trader active in Asia.

However, some sellers said the current market is overheated.

"I think we will see a price drop fairly soon. The price increase was very sudden and very high. The market is likely to see a drop past [the] second half of May," the seller said.

Another seller said very few flexible volumes have been available outside of Nigeria.

"Spain is the only other source of flexible volumes now, but it is not a flexible source like Nigeria. Access to shipping, reload costs and other factors make it a hard destination to work with," the seller said. "Shipping is still very much constrained, particularly for traders looking to do a cross-basin trade."

Ongoing problems at the Yemen LNG facility following an attack at a pipeline on 26 April could have freed up more shipping, said a few trading sources who expect the facility's supply constraints to last up to one month.

Shipping data showed four vessels - the 151,000 cubic metre (m³) Kmugungwha, 154,500m³ Gaselys, 145,700m³ STX Kolt and 165,000m³ Maersk Marib - were bound for the Balhaf port in Yemen ahead of the restart of the facility when the second attack on the pipeline happened.

"I think the force majeure at Yemen LNG is likely to free up at least one vessel to lift Nigerian FOB (free on board) volumes," said a trader who added that he expects to see two out of the three offered cargoes to head for Asia and the third one to go to Kuwait.

The lifting dates for the latest NLNG tender are: 23-25 May, 26-28 May and 27-29 May. The cargoes are likely to reach buyers in Asia in the second half of June.

Other traders pointed to the fact that the second half of June as well as July and August are expected to be the peak summer months in Asia.

Reload volumes head for Asia

Two or three Qatari cargoes were said to be heading towards northeast Asia for June delivery, according to numerous market sources one of whom said these volumes are likely to be reloads from Zeebrugge, offered into Japan through EDF Trading.

While this is not the typical trade flow, it is not surprising given the tight availability of supply and current prices in the region, said a Singapore-based trader.

"Buyers in Japan are prepared to go as high as $18.00/MMBtu for June now," the trader said.

"June and July [prices] are more or less at the same level. Contractually, EDF has the right to do this. It has been quiet for a while but there is no surprise that it would deliver for this timing given the price", the trader added.

BP vessel heads for Brazil

In Portugal, the BP-controlled 138,000m³ British Merchant left the Sines terminal on 29 April and is destined for the Brazilian terminal of Pecem, according to shipping data.

The vessel is scheduled to arrive in Brazil on around 7 May, but it is unclear where the tanker loaded a cargo. Before Sines, the British Merchant lifted re-export volumes from Spain's Mugardos terminal.

According to the country's gas transmission operator Enagas, 66,000m³ left the tanks at Mugardos on 25 and 26 April, the same time that shipping data put the BP vessel in Spain.

Whether or not BP loaded additional volumes at Sines before travelling to Brazil remains unconfirmed.

In the US, Cheniere Marketing has requested a two-year extension of its US Department of Energy (DOE) license to re-export cargoes from Sabine Pass.

The US-based company is requesting blanket consent to reload up to 500bn cubic feet (bcf), or 14bn cubic metres (Gm³), over the term of the requested application.

The application is for the same amount that Cheniere requested in early 2010 and the company is requesting that the approval be granted by 1 June.

Reloading in the US Gulf has all but halted amid the tight supply in the market that has kept any overhang of cargoes from coming into the US Gulf.

The last cargo to be reloaded out of the region was in mid-March when Petrobras lifted volumes at Freeport.

In Argentina, ICIS has received further confirmation that Spain's Repsol will not deliver its 10 contracted cargoes to Bahia Blanca, leaving the country's state-run gas company, ENARSA, short by six additional cargoes throughout the peak winter months.

Repsol's claim is that ENARSA has not fulfilled its letter of credit obligations, which will not assure the Spanish company payment for the cargoes, therefore triggering a justification for Repsol not to deliver LNG.

In the country, there is also uncertainty about how the Cristina Kirchner government will proceed with the gas company ENARSA, which is government controlled, and the newly nationalised YPF.

ENARSA has been the single entity buying LNG for the country, but the company could be absorbed into YPF, sources said.

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