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Market comment: Japan’s LNG buyers step up July procurement

08 May 2012 10:54:00 | lmd

Numerous buyers in Japan were said to have stepped up their procurement for July, as the prices further out on the curve are rising, with initial H1 August offers already in the high $18.00s/MMBtu.

Sources close to Tokyo Electric (TEPCO) said the utility had taken July volumes at slightly below $18.00/MMBtu.

However, there is no clear indication of who the seller was as yet.

The buyer was likely to require at least one more cargo in May, according to numerous sources, while both Kansai Electric Power (Kansai) and Kyushu Electric Power (Kyushu) were also said to be firmly in the market for July deliveries, although no deals were heard to have taken place as yet.

Despite this flurry of activity, several Japan-based traders said demand had been weaker than expected for July, as inventories of numerous gas distributors appeared to be adequately covering demand.

This was largely attributed to the number of maintenance shutdowns at power facilities over the spring months and temperate weather conditions which had eased the need for both heating and air conditioning in the country.

However, with the last nuclear reactor - Hokkaido Electric Power's No 3 reactor at its Tomari power plant - now down for maintenance as of 5 May, the demand for LNG is expected to increase once again.

Other utilities are expected to take additional cargoes to fulfil power supply requirements from the island, while the peak summer season will see the intake of LNG rising to maximum capacity, sources said.

Despite this, numerous sellers said that buyers were still hesitant to commit to cargoes ahead of anticipated improvements to supply for August deliveries.

"The very prompt deliveries are high right now, but we expect there to be more supply for August," a Japan-based trader said. "The high prices are making buyers hesitant."

Sellers, in turn, pointed to extremely tight supply on the FOB (free on board) market, as well as limited opportunities to charter in vessels for cross-basin haul.

However, some sellers were concerned that the market is peaking.

"I don't think that the pricing that we are seeing now is sustainable. The market has reached its peak as far as I can tell," the seller said. A portfolio seller said that the recent increase in prices has been too rapid and too sharp.

"The market could see a significant downside soon. I don't think that such dramatic rises in prices that we have seen are justified by any means," he said.

Japan's LNG buyers are working with demand profiles in the context of mid-term weather forecasts.

"Should the summer temperatures turn out milder than expected, we are likely to see inventory surplus as we did in the end of summer 2011 in Japan," a trader said.

Repsol markets volumes in Asia

As many as 10 additional cargoes could come from Repsol's Peru LNG facility, while reloads out of Spain could also provide some supply into Japan.

Traders active in Asia confirmed that Respol has been actively marketing volumes in Asia. "I think some of these volumes were originally intended for Argentina's ENARSA," a trader said.

Sources also said that the company chartered in the 140,000m³ Golar Viking for a period of one year.

Some traders suggested that the new shipping position is likely to be taken by Repsol to deliver volumes to Asian customers. "I think that Repsol is more active in Asia now than they've ever been. Whether all of ten cargoes originally scheduled for Argentina will be diverted to Asia remains to be seen, however," the trader said.

Longer Brazilian supply could see Petrobras sell some of the five spot cargoes recently purchased, according to one Singapore-based trader, who said that volumes from Oman were also available for late July delivery through portfolio players.

Indonesia's Tangguh tender for as many as eight cargoes was still expected to go ahead despite delays, the trader added, which would add some length to the market ahead of the Angola LNG start up.

Q-max heads for the US

The 266,000m³ Umm Slal is destined for the US, according to ship tracking data.

The vessel is expected to arrive in the US in early May, but a specific terminal was not identified. The Q-Max vessel discharged a Qatari cargo at Golden Pass LNG in March last year.

Another Q-category vessel is heading to North America, with Mexico's Altamira terminal expecting the 216,200m³ Mesaimeer on 13 May, according to the local port authority.

A Nigerian cargo will come on the heels of the Qatari volumes at Altamira.

The 122,000m³ LNG Port Harcourt is scheduled to begin discharging around 15 May, the Port of Altamira said.

On the west coast of North America, the 155,000m³ Tangguh Sago is headed toward Sempra Energy's Energia Costa Azul terminal in Mexico.

The Tangguh Sago destined to arrive by 1 June, vessel data showed.

The arrival of vessels to the Sempra terminal in northwest Mexico has been rare as Sempra and the Tangguh consortium, where the most recent cargo originated, has amended the terms of its 20-year LNG sales and purchase agreement.

More cargoes from the 0.5 billion cubic feet (bcf)/day contract will be diverted from Mexico for domestic use in Indonesia.

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