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Market Report: Market heats up on new supply concerns

04 May 2012 19:21:32 | glm

Supply issues took centre stage again this week after Nigeria LNG (NLNG) cancelled a tender for three free on board (FOB) cargoes loading 23-29 May. The official explanation received by traders active in the tender attributed the cancellation to unexpected changes to maintenance plans of the facility's Train 3, although this could not be confirmed with NLNG.

Other sources suggested that the tender was pulled as a result of shipping constraints limiting participation and bids not being in line with NLNG's price expectations, while one buyer speculated that the consortium had found a buyer for the three cargoes before the tender had closed.

The cancellation added extra impetus into a market that was already feeling the impact of earlier planned spring maintenance schedules on June and July supply, and ongoing unplanned outages at the Yemen LNG facility.

"We are talking about only three cargoes, but I think the market is so stretched right now that the impact on price expectations will be immediate. Other than Spain, I don't see many FOB options right now," opined one trader.

While trading activity in Japan was relatively thin this week because of the Golden Week public holiday, the cancellation of the NLNG tender sent offer levels from the Atlantic Basin for July volumes into northeast Asia rising from the high-$17.00s/MMBtu at the beginning of the week to the low-$18.00s/MMBtu on Friday.

Earlier, numerous market sources said a deal was concluded between a major Atlantic Basin portfolio supplier and a buyer in northeast Asia at $18.20-18.30/MMBtu for July delivery, although this could not be confirmed with either party involved in the deal.

Buyers in Asia shifted their attention to potential supply from Spanish portfolio supplier Repsol, which may not deliver the remaining nine contracted cargoes to Bahía Blanca, ICIS understands. The cargoes could be available over the summer months, according to buyers in northeast Asia, although several questioned whether the constrained shipping availability would allow the volumes to be brought into the region (see separate story).

"It would depend how much demand there is in South America. If Brazil's demand is down, there could be some very prompt cargoes available, but it would be difficult to make the shipping work because of the lack of modern vessels," said one buyer.

Pluto loads first commercial cargo

Some signs of relief for Japan's buyers were provided by Australian oil and gas company Woodside Petroleum, which is expected to load its first commercial cargo from its Pluto LNG plant on the 165,000 cubic metre (m³) Woodside Donaldson next week. Japan's Kansai Electric Power and Tokyo Gas, the long-term offtakers from the project, are expected to procure less volume on a spot basis. This will increase the overall spot supplies available to other LNG buyers in northeast Asia.

Europe primed for more reloads

The tight global supply situation, which has reduced the availability of flexible volumes, continued to support reload operations in Europe.

The Paris-headquartered GDF SUEZ-chartered 149,700m³ Grace Cosmos lifted a reload cargo at France's Montoir facility - the first reload at the terminal since it started offering the service in February. The vessel is expected to arrive at Japan's Chita terminal on 3 June, where Chubu Electric Power has capacity, according to shipping data.

GDF SUEZ has capacity at the Yemen LNG plant, where there was ongoing uncertainty over the extent of the outage there since the second sabotage attack last week on the pipeline linking the plant to its supply source. Yemen LNG was forced to cancel five cargoes in April following a first attack at the end of March, although it was unclear how many of the cancelled cargoes were scheduled to go to offtakers French Total and GDF SUEZ.

Another GDF SUEZ-controlled vessel, the 138,059m³ BW Suez Boston was scheduled to arrive at Italy's Rovigo LNG terminal on 6 May from Egypt's Idku LNG, shipping data show. Adriatic LNG said the cargo was for an existing capacity holder, which rearranged the delivery date to accommodate the vessel, prompting sources to speculate that it was part of a cargo swap between GDF SUEZ and capacity holder UK-based BP.

Elsewhere in Europe, German utility RWE sent out an invitation for a tender for one FOB cargo from the Snøhvit facility, in Norway, trading sources said. The lifting date for the cargo is understood to be 15 July. RWE is accepting offers on a fixed-price basis, traders said. The deadline for the tender is 11 May, with the award expected on 23 May.

In a separate development, BP was identified as the winner of the PFLE tender for an FOB loading at the Atlantic LNG plant in Trinidad on 4 May, sources said.

Japan forced to raise bids

Japan's buyers were the first to respond to a tighter supply picture and strong demand from buyers in South America.

Bids in northeast Asia for July delivery moved up gradually to the mid- to high-$17.00s/MMBtu, a few buyers in Japan that were active this week upped their bids to the-high-$17.00s/low $18.00s/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 halves of July.

The last operating nuclear reactor in Japan - Hokkaido Electric Power's No 3 reactor at its Tomari power plant - is scheduled to be taken off line over the weekend, leaving the country without any nuclear power generation for the first time in almost four decades.

Outside Japan, South Korea's independent LNG buyer GS Caltex is understood to be in the market for a cargo for delivery in the second half of June. A trader said the buyer's bid of around $16.50/MMBtu was not competitive enough to attract sellers.

ENARSA steps up spot search

Argentinian LNG buying incumbent ENARSA has not yet received a formal notification from Repsol that the Spanish company will not deliver the contracted cargoes it won in a previous tender, sources said. However, ENARSA is pursuing additional import volumes amid the shortages the company faces heading into the southern hemisphere winter, a source in Argentina told ICIS.

Beyond the cargoes that might not be delivered by Repsol, ENARSA is still in need of filling one slot in June, July and August at its Bahía Blanca terminal. In addition, ENARSA has still not secured the additional 30% of supply it had originally sought out this year for its Escobar terminal.

South America has provided strong competition to Japan for summer volumes, but buyers pointed to weakening demand from Brazilian state oil and gas company Petrobras as one potential factor that might curb competition for June and July cargoes.

At least five tankers were en route to Brazil because of Petrobras's aggressive procurement strategy over the past month to make up for low hydroelectric output and lack of stored water in the country's southern reservoirs.

However, the scenario has changed over the past week, with an increase in precipitation in the southern region, and Petrobras has backed away from the market for June and July volumes, sources said.

India feels price pressure

India has been squeezed between the two higher-priced netback markets, and the country's LNG buyers might not be in a position to compete with South American and east Asian participants for cargoes, sources said this week. Indian buyers are still assessing their spot-buying requirements for June.

Weaker demand signals from end-users for spot LNG and a string of maintenance outages from a number of major fertilizer plants and refiners have left India's LNG participants with full inventories.

Mumbai-based Reliance Industries is understood to have a requirement for one spot cargo for mid-June delivery into the Hazira terminal. Network operator GAIL is reviewing its requirements, but could enter the market in the near future for a June cargo into Dahej, a company source said.

"Our tanks are pretty much full at Dahej at the moment. It will depend on the send-out rate from the tanks, but we may look for another [spot] cargo before the monsoon [season]," the source said.

The state company closed a tender late last month for three prompt cargoes into Dabhol, but the slow pace of commissioning - which was initially delayed after dredging issues - coupled with constrained cargo availability saw GAIL withdraw the tender, the source confirmed.

The Kuwait Petroleum Corp (KPC) has provided strong competition to India, and is likely to announce a tender for one cargo for delivery in July, market sources said.

Kuwait's incumbent LNG buyer is likely to require volumes during the peak summer season to cope with rising domestic power demand. "While the market is very constrained right now, I think that the prices at $15.00-16.00/MMBtu could still make sense for Kuwait," a trader said.

Statoil, Golar charter out vessels

Norway's Statoil and Golar have set short- and medium-term vessel charter rates at $110,000-115,000/day and $135,000-155,000/day respectively, according to shipping sources.

Shipowner Golar set its 140,000m³ Golar Viking for 12 months with immediate effect at around $150,000/day on Wednesday, a source close to the deal told ICIS.

The vessel, which has come off charter from Qatargas, is thought to be going to UK-based BP, but this could not be confirmed. Some brokers, who consider BP to have won Trinidad's PFLE tender for 4 May lifting, think that BP already has sufficient shipping capacity, with three of its vessels currently idling in the Caribbean.

Statoil has fixed its 135,269m³ Gemmata to a Japanese trading house for $110,000-115,000/day for a single voyage. The vessel was due to pick up diverted Nigerian volumes this week from a long-term offtaker within the Nigeria LNG consortium, brokers said, before delivery to Japan.

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