Market Report: Spot balance tips in sellers' favour

26 August 2014 | Ludovic Aldersley, ICIS Markets Reporter

An upturn in early winter pricing sentiment on the back of Australia’s awarded North West Shelf (NWS) tender has strengthened sellers’ bargaining position over the past two weeks.

However, with numerous marginal supply options still available in both the Atlantic and Pacific basin, buyers are keen to realise shoulder month value close to the recent three-year lows seen on the ICIS East Asia Index (EAX).

While fundamentally little has changed in terms of global supply and demand since the bottom of the market last month, November NWS free on board (FOB) bids above $13.00/MMBtu have set an important marker.

Those bids reinforced sentiment that as more buyers seek to capture value ahead of the winter, marginal demand will likely outweigh supply, and the upward seasonal price trend will take hold.

Current bid/offer spreads on available cargoes for a second half of October delivery to Japan, however, are still wide.

On the one hand, sellers see more interest from buyers looking to refill inventories ahead of the winter. On the other, buyers see sellers with excess cargoes from Malaysia, Indonesia, Australia and Papua New Guinea.

In the Atlantic basin, excess supply is being tendered from Trinidad and Tobago and opportunities for reload business from the US Gulf, Spain and northwest Europe are rising in line with more attractive delivered ex-ship (DES) prices in potential end markets.

While it would be unlikely for Argentina’s state gas buyer ENARSA and procurement agent YPF to make any further purchases for 2014, the companies are expected to launch a buy tender to fill outstanding 2015 demand in the coming weeks. 

Pacific supply/demand

As Japanese traders start to return from the traditional Obon holiday season in mid-August, the prospect of buyers sealing prompt cargoes should improve. With Chugoku Electric said to be the only Japanese end-user to have secured a cargo from the NWS tender, some of the larger power utilities – Kansai Electric, Kyushu Electric, Chubu Electric and Tokyo Electric Power (TEPCO) – may yet top up inventories for October and November, sources said

Demand from China and South Korea, meanwhile, has also emerged. State-owned electricity utility, Korea Midland Power (KOMIPO) announced a buy tender for an October cargo on a DES basis. Bids for the partial cargo are due on 21 August, with offers expected to arrive on a fixed-price basis.

State-owned Petrochina and an independent energy company are understood to be probing the market for October cargoes as well as for volumes further out into 2015.

While there are suggestions that KOGAS may be able to shed some of its current length by supplying KOMIPO, there appears to be no shortage of alternative suppliers in the region.

In Indonesia, the Pertamina-operated Bontang LNG plant is heard to have five to six excess cargoes for October delivery, while the BP-operated Tangguh plant is understood to have up to six cargoes for September delivery.

Malaysia’s national oil and gas company PETRONAS, meanwhile, is understood to have up to two cargoes for October delivery, which were offered to existing long-term buyers.

The Papua New Guinea LNG (PNG LNG) plant continues to offer cargoes to the spot market but consortium partner Oil Search this week announced deliveries through long-term contractual agreements would start before the end of 2014, as expected.

China’s state-run Sinopec is expected to take a PNG LNG cargo to commission its floating storage and regasification unit (FSRU) terminal in Qingdao in October.

More immediately, another long-term Japanese buyer TEPCO is taking a PNG LNG spot cargo aboard the 177,000 cubic metre (cbm) Spirit of Hela at the Futtsu terminal on 27 August.

Thailand secures prompt DES value

Thailand’s national oil and gas company PTT awarded a single-cargo LNG tender at below $11.50/MMBtu for late September or early October delivery.

The tender, which was awarded shortly after closing on 12 August, reveals the contango in the market with the bid/offer spread on 21 August for northeast Asia delivery in the second half of October understood to range from $11.75/MMBtu to $12.50/MMBtu. 

NWS awards Aug-Nov cargoes

Four cargoes spread across late August to late November were awarded by NWS on 8 August.

Aside from Japanese utilty Chugoku Electric, which was said to have sealed DES volumes, portfolio sellers BG Group, Royal Dutch Shell and Norwegian producer Statoil are understood to been awarded on an FOB basis.

The loading windows from Australia are 31 August to 9 September, 22-30 September, 21-29 October and 22-30 November.

Trinidad, US Gulf to offer surplus

A spot cargo for September loading has been offered from the 14.8mtpa Atlantic LNG export complex in Trinidad & Tobago.

The 23 September cargo is being offered on an FOB basis from Trinling, one of the consortia that markets volumes from Atlantic LNG trains 2 and 3.

Market sources in the Atlantic Basin said offers for the Trinidad cargo for a late September period could rise to the high $11.00s/MMBtu, but so far, discussions for October and November deliveries have been notional.

The four-train Atlantic LNG export plant has typically produced only annual contract volumes throughout the year, mainly due to problems with sourcing feedgas. However, with the contract year soon to be concluded in October, additional spot cargoes could become available from Trinidad, which would boost spot flexibility for the fourth quarter.

Storage plays could also be utilised in the Atlantic with the two cargoes held by US-based ConocoPhillips in its Freeport LNG facility, which were imported earlier this year.

A trader said offers for a September FOB loading could go into the $12.00/MMBtu range, but would be dependent on demand in Asia and South America. 

Petrobras takes European FOB

Brazil’s state-owned LNG importer Petrobras took delivery of a cargo at the Gate LNG terminal in the Netherlands on an FOB basis on 19 August.

The vessel used to lift the volumes, the 138,000cbm Excelerate, was sub-chartered by Petrobras in the first week of August. The Brazilian company is understood to have bought the cargo from Switzerland-based LNG trader, Trafigura, which had itself bought on an FOB basis from Gate capacity holder Econgas in an earlier transaction. The Gate reload was underpinned by a spot DES cargo from Norway’s Statoil which arrived at Gate on 9 August aboard the 148,000cbm Arctic Princess.

Econgas is due to receive another cargo on 29 August, but this time it is understood to be part of a longer-term contractual agreement with BP. Further FOB opportunities from the Netherlands, Belgium and France are understood to be on the horizon, while firmer interest is appearing for fresh Spanish reload transactions.

Earlier offers of September loadings in the high $10.00s/MMBtu have moved closer to $11.00/MMBtu over the last two weeks.

The Petrobras-controlled 125,000cbm Wilgas is due to lift a reload from Portugal’s Sines terminal on 23 August. The state-run company is understood to be tentatively bidding for an October requirement. 

Argentina weighs up 2015 timing

While there is space for several cargoes to be delivered to the Bahia Blanca terminal this year, these outstanding slots are unlikely to be needed, sources have said, given the stable weather-driven demand predicted for the rest of 2014.

With at most one or two extra cargoes needed for this year, the focus appears to be firmly set on outstanding 2015 demand.

Approximately 50% of the country’s 2015 needs for Bahia Blanca and 70% of the cargoes required for the Escobar terminal have already been acquired through tenders held in late 2013. Up to 30 slots remain unfilled for 2015, though ENARSA and YPF have yet to determine whether all will be sought at the same time. The buyers may instead select to tender for outstanding commitments for the country’s southern-hemisphere summer from January to March first, before re-tendering for volumes required over the rest of 2015 at a later date.

“The summer [of] 2015 is what [ENARSA and YPF] are concentrating on most right now,” an Americas-based source said.

The exact timing of Argentina’s next tender will likely depend on the evolution of demand from other parts of the global market. 

Prompt charter rates tick up

Prompt charter rate sentiment has increased ahead of fresh newbuild deliveries.

A shortage of vessels relative to cargo opportunities has been driving upward pressure particularly in the Atlantic basin’s duel fuel diesel electric (DFDE) market.

Angola LNG has secured employment for all four of its DFDE ships, leaving only some of its Sonangol-owned steam turbine vessels available. The steam-turbine market has been stable in the low $40,000s/day for some time, while DFDE vessels can now be fixed in excess of $65,000/day for certain prompt cargo opportunities.

By next month, an increase to 12-15 vessels available worldwide is expected to add some bearish sentiment to the charter market.

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