Cookies on the ICIS website


Our website uses cookies, which are small text files that are widely used in order to make websites work more effectively. To continue using our website and consent to the use of cookies, click away from this box or click 'Close'

Find out about our cookies and how to change them

Supply squeeze fuels LNG winter market tightness

14 Nov 2013 16:33:51 | glm


The strong upswing in global spot LNG prices has continued to show no sign of abating as northeast Asian front prices reached Brent crude parity on the back of sustained strong demand competition in the region and an increasingly challenged winter supply scenario (see Market Report).

With no sign yet of Chinese, Japanese and South Korean buyers backing away from the spot market, the ICIS December East Asia Index (EAX) on 14 November stood $3.90/MMBtu higher than the corresponding period last year.

Aside from the emergence of Chinese state-owned buyers on the spot market in force as they seek to avert looming winter gas shortages, an extremely tight supply picture and lack of available volumes from leading suppliers has been a pivotal factor underpinning the winter price spike.

Qatar’s commitments to offer incremental supply to some of its northeast Asia customers over winter has left RasGas with no flexible volumes to market at least until the end of the year, multiple sources said. Qatargas is understood to be in a similar position, and according to one source, it could only offer one or two cargoes to its long-term customers in January.

Some sources attributed this to an increase in supplies under long-term and mid-term contracts of both producers, while others also mentioned the potential impact of planned maintenance schedules. The 7.8mtpa capacity RasGas Train 7 came down for maintenance earlier this month and is expected to remain off line for three to four weeks.

NLNG cutback adds to tightness

Nigeria LNG (NLNG) has long served as an important source of flexible supplies, but the venture is understood to have ruled out offering prompt LNG cargoes to the market on both a tender or bilateral sales basis for at least a two-month period, a move which is likely to add to the supply tightness over the peak winter period.

There have been four force majeures (FMs) at NLNG during its last gas year, spanning from 1 October 2012 to 30 September 2013, and the underperformance of the 22mtpa facility has been a contributory factor in limiting global spot supply availability.

“NLNG is trying to do everything [it] can to rebuild an image of reliable producer. But this comes at [the] cost of short-term flexibility,” one NLNG offtaker said.

The measures introduced by NLNG include maintaining a certain reserve level of both feedstock gas and LNG that could be diverted to meet contractual obligations in the event that it had to declare another FM on deliveries. This means curtailing the number of free on board (FOB) tenders at NLNG, at least in the short-term.

“When offtakers nominated Annual Contract Quantity [ACQ] to the consortium, a decision has been made to reduce upward flexibility on all offtake requests. This was done so that NLNG can find it easier to meet contractual obligations should a force majeure scenario take place,” the source said.

However, if production remains robust, as it has over the last two months, additional volumes could be offered to offtakers again.

The last supply disruption to the facility took place in September, when the Shell Petroleum Development Corporation (SPDC) declared FM on feedstock gas to NLNG after it shut down the Trans Niger Pipeline (TNP) for repairs because of damage caused by the theft of crude oil. The pipeline has been targeted six times since early July, which has caused shutdowns to repair leaks.

The NLNG offtaker said that it was notified by the venture that a new monitoring system has been installed on the TNP in order to detect damage earlier, which should reduce the risk of shutdowns and FM scenarios.

“During the last force majeure on feedstock gas, NLNG was able to meet its contractual obligations. This is partly due to measures which have been [put] in place,” the source said.

However, the last FM on feedstock gas lasted only 10 days, and it is unclear if the facility could have met obligations had the outage persisted longer.

Other Related Stories

Other Options