Gazprom Marketing & Trading (M&T), a subsidiary of Russia’s Gazprom group, remains in discussions to supply LNG to Egypt despite delays to the set-up of the country’s import infrastructure.
In addition, Frederic Barnaud, Executive Director of LNG, Shipping and Logistics, said Gazprom M&T would take a positive view on Mexico’s Costa Azul terminal as a possible candidate for conversion to a liquefaction plant.
In an interview with ICIS, Barnaud said that the company would trade 50 cargoes this year – more than double 2013’s figure – despite concerns over the outlook for global gas demand.
Gazprom M&T, alongside Algeria’s Sonatrach, has long been a front-runner as a potential supplier to Egypt’s floating storage and regasification unit (FSRU) despite delays in setting up the necessary import infrastructure.
“We are keeping a close eye on the situation in Egypt and still have a strong willingness to supply in the short and medium term; we continue to make detailed and advanced proposals,” said Barnaud.
The 170,000cbm Hoegh Gallant is now expected into Ain Sokhna to serve as the Egyptian FSRU by the end of the first quarter of 2015 after Norwegian ship-owner Hoegh recently concluded a five-year charter with Egypt’s EGAS.
Questions over money and guarantees remain but the key issue is the arrival of the vessel before the summer demand season kicks in, Barnaud said.
Mexico and South America
The next two-to-three years offer a good supply opportunity into South American markets, notably Argentina and Brazil, but developing mid-to-long term market visibility is difficult given changes to the countries’ domestic markets, Barnaud said.
Gazprom M&T has been an active supplier to Argentina through tender processes and is keen to continue. The method ties in well with the company’s flexible approach to sourcing cargoes on a free on board basis, especially from Nigeria and through Spanish reload operations.
On Mexico, Barnaud said the push towards a competitive energy market was a good step but commented on the complex regulatory environment and the initial challenge to overcome recent gas supply deficits.
Voices from within Mexico have talked up the country’s future as an LNG exporter given its large domestic reserves and proximity to US shale gas. There has been talk of US Sempra’s Costa Azul import terminal as a candidate for conversion to a liquefaction plant. Gazprom M&T has capacity at the terminal, alongside Anglo-Dutch Shell.
Barnaud said Gazprom M&T would take a positive view on a move to convert the terminal and added that the company was open to any discussions should they arise.
Gazprom M&T has tended to focus more on structured mid-term deals or playing a secondary supplier role such as to primary sellers into Kuwait rather than entering into capital-intensive production projects. It has a purchase agreement with Colombia’s Pacific Rubiales for offtake from the floating liquefaction facility, the world’s first, with start -up scheduled for 2015.
Global pricing and supply
“To us the only real price index of relevance is more or less the value of LNG you can buy from Spain or Nigeria, but as the supply pool increases in the future I can imagine you may see a price index develop in Asia and one in the Atlantic, most likely from US exports,” Barnaud said.
Under one third of the company’s LNG volume comes through the long-term contract with Sakhalin LNG. While marketing Russian production is core to the business, short and mid-term deals, swaps and tenders will remain central to the company’s business model.
The role of Spanish reloads will fade as existing contracts directly to the country expire, Barnaud said.
Market outlook and pricing
“We’ve been a bit spoilt in recent years with high prices; a level of $11.00/MMBtu is not bad. Many people have not been exposed to the market over the long term and they’re a little bit caught,” Barnaud said.
Spot LNG prices have been weak for much of 2014 with lower weather-driven demand meeting consistent supply and additional volume from the start of the Papua New Guinea export facility.
While short-term weather trends could have a swift impact on demand, the longer-term role of gas was a concern given competition from other fuels, Barnaud said.
“10 years ago people made money from swapping cargoes, for example to avoid paying the costs of transit through Suez and then sharing the savings – these days will come back,” he said.
Interview done by: Edward Cox, ICIS, Global LNG Markets Editor
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