Favourable price spreads boost European LNG reloads

Northwest Europe is set to be a key source of LNG supply through August as weak European demand and reduced supply elsewhere has opened up large spreads between liquid hub prices and spot LNG prices in South America and the Middle East.

On 25 July, the August ’16 contract at the British NBP hub was assessed at $4.83/MMBtu (36.8p/th) by ICIS while the equivalent Dutch TTF product closed at $4.769/MMBtu (€14.813/MWh).

The ICIS northwest Europe reload price, which is the TTF front-month plus $0.25/MMBtu, was assessed at $5.02/MMbtu on Tuesday.

This puts European reloads at a substantial discount to spot LNG assessments at key buyer markets. Egyptian and Argentinian spot prices, reached $6.10/MMBtu and $6.00/MMBtu respectively on Tuesday, 26 July.

From a buyer’s perspective, the discount that reloads hold to those markets means that even with shipping costs of around $1.00/MMBtu to South America and $0.30/MMBtu to Egypt, there is still a profit to be made from reloads.

The majority of the volumes which will underpin reloads have come from mid-term contracts that Qatari producers hold with European utilities E.ON and Centrica, which are typically delivered at a discount to hub prices.

European gas demand in August is typically weak and the shutdown of Britain’s largest storage site Rough has made offering reloads a more attractive proposition than selling onto the NBP or TTF.

Reloads on the horizon

The British Isle of Grain terminal has been active through the summer and two more reloads have been lined up at the facility in August, multiple shipping sources have told ICIS.

The 159,800cbm Woodside Goode will lift volumes from the terminal in the second half of August. The vessel will be the second reload that Centrica has lined up for August with the 159,800cbm Yari LNG expected to lift volumes in the first half of the month.

Before the two reloads arrive, however, the Q-flex Al Gharrafa will discharge its cargo, lifted from Qatar, at the English terminal.

Stocks at Grain total 325 million cubic metre (mcm), which should be sufficient to cover the two reloads. Send-out from the terminal into the grid has been minimal, averaging less than 1mcm/day in July-to-date as shippers prioritise reloads over selling into the NBP.

At the Dutch Gate terminal, the ballast 160,000cbm Cool Explorer arrived on Monday morning, where it will lift volumes.

The Qatari Q-Flex Al Nuaman will deliver a cargo in late July, boosting stocks that sit at two-thirds of total capacity.

The ballast 154,900cbm Trinity Arrow was on its way to Gate after making its way through the Strait of Gibraltar on Monday morning, ship data showed.

Europe fills the supply gap

Limited supply in the Atlantic basin means the Isle of Grain and Gate terminals have become the preferred options for LNG traders looking to cover positions.

One of the production trains at the Nigerian Bonny LNG plant has been offline through May, June and July.

The sole production train at the Angolan LNG terminal has been brought out of action until September.

The US Gulf has emerged as an important market after the first production train at the Sabine Pass facility came online earlier in 2016. However, the start-up of the second train has been delayed to September, when maintenance is due on the first train.

Winter outlook

The NBP Winter ’16 contract out turned at $5.96/MMBtu (45.30p/th) on Monday. The sizeable curtailment of Rough has put a premium on winter contracts and suggests that LNG reloads will dry up as the British grid has to cope without Rough through its coldest months.

This could potentially make the British market more attractive for LNG sellers. However, traders have said this will depend on prices in East Asia as northwest Europe reverts back to a market of last resort. thomas.rodgers@icis.com