16 March 2018 | Alex Froley, ICIS LNG Analyst
Spot LNG markers for front-month delivery held pretty stable over the past four weeks, as improved spot cargo availability at the end of the northern hemisphere winter compensated for the shutdown of the 8.6 mtpa Papua New Guinea production facility.
Meanwhile, short-term gas prices for immediate delivery into Europe spiked higher during a severe cold spell in northwest Europe. This produced a response from the LNG market, with sendout from existing LNG terminal stocks increasing on the day and an increase in ships heading to northwest Europe in following weeks to refill the tanks.
The ICIS East Asia Index (EAX) for April deliveries to Japan, South Korea, China and Taiwan averaged $8.458/MMBtu over the four week period, some 19% lower than the previous month’s average, but up 38% from the average assessment for April the year before.
The EAX opened at $8.40/MMBtu on 16 February. It drifted slightly lower towards $8.20/MMBtu towards the end of February, before rising higher to $8.80/MMBtu on 5 March as the market gradually absorbed the news that the ExxonMobil-operated, two-train PNG LNG plant would shut for two months or more after a 7.5 magnitude earthquake rocked Papua New Guinea early on 26 February.
Prices softened heading into mid-March however. Despite the PNG outage and potential ongoing reductions at Malaysia’s 29.2 mtpa Bintulu plant after damage to an upstream pipeline in January, traders reported there were spot cargoes available in the market, including volumes being offered from China as its winter demand starts to decline. The EAX front-month closed at $8.250/MMBtu on 15 March.
The front-month South America index (SAX) averaged $7.123/MMBtu, though there was not strong prompt demand from the region. Argentina’s ENARSA did, however, carry out a tender for up to 22 cargoes to be delivered to its Bahia Blanca and Escobar terminals during May-August, covering the southern hemisphere winter.
The front-month Northwest Europe Index (NEX) averaged $6.333/MMBtu, the lowest of the three markers, and some $2.124/MMBtu below the EAX. However, prices for immediate delivery were more volatile and much stronger.
Cold weather for Europe
Cold weather from Siberia swept across northwest Europe at the turn of the month at the same time as a number of gas supply facilities were hit by unexpected outages. Prices for within-day and day-ahead delivery soared higher across the region, and the UK system operator, National Grid, issued a “gas deficit warning” on 1 March to call for extra supplies.
Day-ahead UK NBP gas closed at a high of $31.56/MMBtu. In reaction, the UK’s three LNG terminals at Dragon, Grain and South Hook sent out large volumes of gas using the LNG stocks already in store in terminal tanks.
The UK in particular saw an increased number of ships heading to replenish its stocks in following weeks. Tankers carrying cargoes from Russia’s Yamal plant and Norway’s Hammerfest freed up some spare volumes for the UK before heading to deliver the bulk of their volumes elsewhere. A full Russian cargo was expected to the UK’s Grain terminal 13 March, while the UK was also set to receive the first cargo from the new 5.25 mtpa US Cove Point plant, aboard the 138,000cbm Gemmata around 20 March.
Meanwhile, another record for the US is the first Sabine Pass cargo under a 3.5 mtpa long-term contract with India’s GAIL, due to arrive at Dabhol on the 166,000cbm Meridian Spirit on 28 March.
PNG and Skikda outages
The ongoing closure of the PNG LNG facility could result in the market losing around 9-10 cargoes per month. Algeria’s Skikda facility has also suffered some problems recently, which could affect volumes usually shuttled across the Mediterranean to southern France and Spain on smaller Med-max size tankers. One 5.2 mtpa train at Australia’s Gorgon is expected to undergo planned maintenance throughout much of April.
But new production is also coming to the market. In addition to the start-up of the US Cove Point plant, across the Atlantic the first cargo is expected to load soon from the floating Kribi LNG production facility offshore Cameroon, with the 141,000cbm Galicia Spirit in position to pick it up. Russia’s Gazprom is contracted to take 1.2 mtpa from the facility for eight years.
Kribi is the world’s second floating LNG project, following the PFLNG Satu operated by Malaysia’s Petronas, which produced its first cargo last year. Shell, meanwhile, is now hoping for production from its giant floating Prelude facility offshore northwest Australia in coming months, while onshore Australia the first 4.4 mtpa train at Ichthys and a second 4.4 mtpa train at Wheatstone are also due on in mid-2018.
Improved nuclear power generation availability in east Asia could also reduce demand for gas as a power generation fuel. Japan’s Kansai Electric restarted its 1.2 GW Ohi 3 reactor in mid-March.
LNG Analyst, Global, ICIS
Alex Froley follows the global LNG markets as an analyst at energy markets information provider ICIS. As well as following the latest market trends in pricing and trade flows, he is working on the development of new features for the company’s analytics platform LNG Edge.
Alex has over fifteen years’ experience in the wholesale energy markets, with a particular focus on European gas and electricity trading and the rapidly-expanding market for spot LNG. He has worked as a price reporter assessing markets including the UK NBP and Dutch TTF gas markets, the German electricity market and Asian LNG and has been responsible for real-time news, daily and fortnightly publications about the natural gas industry. He has also worked as a European gas analyst tracking supply and demand data for gas flows across Europe.
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