24 August 2016 | Ludovic Aldersley, ICIS LNG Analyst
Demand for spot LNG continued to outpace supply for a fourth month running until early August when buyers held the line before starting to reverse earlier gains made by sellers.
The ICIS September South America Index, SAX, was assessed for the final time at $5.77/MMBtu on 15 August, having gained $0.20/MMBtu since becoming front month on 18 July.
At its peak in early August, the front-month contract had climbed $0.67/MMBtu to $6.20/MMBtu, a rise eclipsed only by the October SAX, which climbed to $6.30/MMBtu over the same period.
The bullishness during the final two weeks of July was driven by a combination of outstanding demand from not only South America but India, Egypt, and East Asia, as well as supply restrictions in the Atlantic and Pacific.
In the Atlantic, Angola LNG and Algeria’s Skikda export plant went offline while production problems persisted in Nigeria and Trinidad. Re-exports from northwest Europe meanwhile also became more expensive on news in mid-July that an outage at Britain’s largest gas storage site was being extended until next year.
Simultaneously, a Middle East LNG exporter also became an LNG consumer when Abu Dhabi’s ADNOC delivered a commissioning cargo to itself at its new receiving terminal. While the exporter still offered a September cargo to the market, the new floating storage and regasification infrastructure at Ruwais is expected to absorb two deliveries a month in the immediate term.
Outside of opportunities for traders to back-fill short positions in the Middle East, India, and East Asian markets, end-buyers from Argentina, Chile, Egypt, India, and South Korea all launched or closed tenders for spot supply.
Argentina’s ENARSA showed the most appetite seeking up to 17 deliveries across September and October through successive tenders. After it awarded six September cargoes in the week ending 22 July, India’s GAIL launched the first of five tenders that collectively sought 13 cargoes from three Indian buyers.
It was not until 5 August that sentiment turned from relative undersupply to oversupply. Unsuccessful bids in the final Argentine tender became the back-bone to a small surge in marginal supply for other buyers.
South Korean buyers POSCO and SK E&S were able to award their tender for one early October cargo at around $5.75/MMBtu. It then became clear that a number of buyer’s requirements were price sensitive. Prices above $6.00/MMBtu limited the buying capacity of Indian importers despite the imminent greater physical capacity to absorb more at the soon-to-be-expanded Dahej terminal.
In a similar vein, the LNG-buying consortium, GNL Chile, did not award its tender after receiving offers in the $6.00-6.20/MMBtu range. With demand retreating at such prices, sellers were increasingly obliged to lower offers.
On the supply side, production was also marketed on a spot basis from Russia’s Sakhalin plant in East Asia as well as Indonesia and Australia. Within the Atlantic, production was sold on a spot basis from Algeria’s Arzew plant which had to face increasingly competitive European reloads. Despite the September SAX losing $0.43/MMBtu from its peak in early August, bearish European gas hubs in August meant the contract was able to increase its premium to the Northwest Europe Index to $2.02/MMBtu by 15 August.
In the US, impending planned maintenance at Sabine Pass in September negated news that fresh production has come online via an earlier-than-anticipated commissioning of its second train. The majority of LNG exports from Sabine Pass to date have gone to South America, according to ICIS LNG analytics platform, LNG Edge.
By Ludovic Aldersley
LNG Analyst, Global, ICIS
Ludovic Aldersley has been the deputy editor of the global LNG team at ICIS Energy for the last two years, having worked his way up through the market reporting ranks over the previous two years.
He has reported on all aspects of the LNG value chain, from long-term sales and purchase agreement (SPA) transactions to the single-cargo delivered ex-ship (DES) and free on board (FOB) spot market, across a broad spectrum of geographies west and east of the Suez Canal. Within the value chain, his specialisation has been on LNG shipping and the charter market.
He has led the development of a charter database at ICIS Energy and has been closely involved in expanding the range of LNG services ICIS provides: from a one-stop shop window of analytics, to proprietary ship-tracking services, as well as a suite of small-scale LNG products for emerging markets.
He graduated with a Bachelor of Science Economics degree from the Universities of Bristol and Toulouse in 2007.
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