Australia’s North West Shelf LNG changes marketing structure from June

04 June  2015 | Lee Xieli, ICIS Market Reporter, LNG

Partners in the North West Shelf (NWS) LNG venture moved on 1 June to a structure in which they would market uncommitted LNG volumes individually, instead of through the Australian consortium’s marketing agency, market sources said.

“The new marketing structure started officially on Monday,” sources familiar with the matter told ICIS in the week of 1 June. However, ICIS understands the venture partners have been marketing excess cargoes on their own since April this year, with deliveries likely starting in June.

“The change looks to be an improvement for the portfolio suppliers in the consortium, because they have their own vessels to decide the deliveries and can optimise on their positions,” one of the sources said.

Smaller equity holders, however, might struggle initially, the source added.

The change means volumes not taken by offtakers or long-term supply contracts are returned to individual equity partners. This includes excess production from the project. Each partner can then sell their allocated volumes bilaterally either through spot trades or tenders on both FOB (free on board) and DES (delivered ex-ship) terms.

This restructuring has been talked about in the market since late last year, but official confirmation could not be sought with the six equity holders in the NWS venture.

The six participants with equal interest are Australia-based mining company BHP Billiton, UK-based oil company BP, US-based major Chevron, Japanese joint venture Japan Australia LNG, Anglo-Dutch major Shell and Australian company Woodside Petroleum. NWS LNG and its operator Woodside declined to comment.

However, Woodside did say in its 2014 annual report that the partners are looking at “a move to equity lifting of uncommitted LNG production” from NWS. The new equity marketing structure would also apply to the Pluto LNG venture, in which it holds a 90% interest, Woodside added.

The 16.3mtpa NWS LNG complex in western Australia has sold six cargoes in four tenders since January this year on both FOB and DES bases. North West Shelf Gas had been the marketing agency responsible for organising the tenders on the consortium’s behalf.

NWS tenders are normally held when there is additional production or unwanted volumes from buyers invoking the downward quantity tolerance in their annual delivery programmes, a trader said.

Potential impact on long-term contracts

The change in marketing structure is not expected to affect any existing long-term contracts that NWS LNG has, particularly the one signed with China’s Guangdong Dapeng LNG Co in October 2002. The 3.7mtpa supply deal – China’s first LNG import agreement – began from December 2004 and runs for 25 years.

Though talk in the market is that NWS LNG partners have been trying to renegotiate with Guangdong Dapeng over the contract price – said to be at a historical low – sources said it is unlikely to happen. The price has been recorded at $3.20-3.50/MMBtu between January and April this year, according to China’s latest customs data. This is much lower compared with the ICIS EAX price assessment which fell from $10.34/MMBtu in January 2015 to $7.50/MMBtu in April.

“It would be impossible for NWS LNG to get a higher price from Guangdong Dapeng, because there is no clause stating a price review is needed,” a source close to CNOOC said. “It is ironclad.”

The likelihood that NWS LNG would consider holding off future shipments to the Guangdong terminal is also low, because of the contractual obligations, according to the source.

“No company would risk their reputation and alienate existing or potential customers just to earn those extra dollars,” the source said.

From January to early June this year, the NWS LNG complex has sent 19 vessels to the Dapeng terminal, data from ICIS shipping platform LNG Edge showed on 4 June.

Separately, Woodside is setting up an LNG trading office in Singapore and is expected to start operations in September. Besides taking on volumes from the US and the Wheatstone LNG project, Woodside is in negotiations with several Europe-based suppliers over the possibility of doing swaps, ICIS understands. Its Australian counterpart BHP Billiton has also set up an LNG trading team in Singapore.

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