19 April 2017 | Alex Froley, ICIS LNG Analyst
The ICIS May East Asia Index (EAX) for spot LNG cargoes averaged at $5.475/MMBtu over its period as the front month index, falling 11% from the April average of $6.118/MMBtu, as global supplies remained untested by any major problems and ahead of any potential increases in electricity demand that might arise when east Asian and Middle Eastern consumers enter summer in the coming months.
The May EAX reflects deliveries into China, Japan, South Korea and Taiwan. It was assessed for the final time at $5.463/MMBtu on 14 April, down $0.162/MMBtu since becoming the front month on 16 March. The contract held fairly steady over the course of the month, with a small increase in early April to $5.700/MMBtu, after some buying interest from countries including India, Jordan and Kuwait, and on the back of a short-term outage in Australia.
The second of the three 5.2 mtpa trains at Australia’s Gorgon liquefaction plant underwent a planned shutdown from 27 March, but this was largely counter-balanced by the facility’s third train starting-up production, confirmed by US operator Chevron in late March. Train two was heard to be returning to action in mid-April, which should allow the plant to build back up towards its full 15.6 mtpa capacity.
The May EAX was up 29% from the May EAX average the year before of $4.256/MMBtu, reflecting influences including stronger oil prices this year. Although spot-traded LNG is priced according to individual deals between buyers and sellers, spot supplies compete against volume available through long-term oil-indexed contracts, and oil therefore exerts an important influence on the market.
The new production from Gorgon train three was joined by another first for the supply side as Malaysian producer Petronas in late March loaded the first cargo from its 1.2 mtpa PFLNG Satu project onto the 150,000 cubic metre (cbm) Seri Camellia LNG tanker. This was the first ever LNG cargo produced from a floating liquefaction project, with the PFLNG Satu moored at the Kanowit gas field some 180km offshore Sarawak. The cargo was due to be delivered to India in mid-April.
US exports continued to build, with 16 tankers departing the Sabine Pass liquefaction plant in Louisiana from mid-March to mid-April, up from 13 during the previous month. Sabine Pass started up its third 4.5 mtpa train in the first quarter of this year, taking its production capacity up to 13.5 mtpa, while a fourth train should increase the total to 18 mtpa by the end of the year.
Angola LNG also saw steady output from its Soyo liquefaction plant in west Africa. In addition to regular delivered ex ship (DES) cargo tenders, where the LNG is sent to the consumer aboard one of Angola’s own project-vessels, the company also held in the past month its first tender for a free on board (FOB) cargo, where the winner of the tender would bring its own ship to Soyo to pick up the volume. Oil major BP won the tender and was expected to pick up the LNG on its 152,000cbm vessel the British Diamond at the end of April.
Egypt’s 3.6 mtpa Idku liquefaction plant has been operating well below nameplate capacity in recent months as high domestic gas demand has restricted the availability of feedgas to be turned into LNG. There were signs of an increase in output in recent weeks, however, with the plant’s first cargo of the year departing aboard the 155,000cbm Provalys on 30 March and the second on the 160,000cbm Maran Gas Delphi on 16 April.
Spreads between the EAX and other regional indices have narrowed since the start of the year, reducing the potential for intra-basin trades, such as reloads from Europe to China and Japan. The May EAX average was only $0.810/MMBtu above the Northwest Europe Index (NEX) May average of $4.665/MMBtu, compared with a $2.409/MMBtu spread seen for January, when east Asian spot prices were at their peak so far this year, pushed higher by an Australian production outage during the peak winter demand period.
The May EAX average was $0.377/MMBtu above the South America Index (SAX) of $5.098/MMBtu, down from a $1.008/MMBtu spread for January. Central and South America saw some continued buying interest over the past month, with Mexico actively looking for cargoes and Brazil showing increased appetite in recent weeks after a slower start to the year.
Looking forward, Norway’s 4.3 mtpa Snohvit liquefaction plant is due to undergo maintenance from mid-May to mid-June, although this is not expected to have a large impact on the overall global balance.
There are new LNG regasification terminals due to come online in China that could prove a potential boost to demand. Guanghui Energy is looking to commission its 0.6 mtpa Qidong LNG terminal in Jiangsu province soon, while Sinopec is awaiting final regulatory approvals for its 3.0 mtpa facility at Nangang in Tianjin province.
In Japan, meanwhile, availability of nuclear power generation will continue to have an impact on the country’s need for imported gas. Kyushu Electric has submitted applications to restart the 1.2GW number three and four reactors at its Genkai power plant this summer and Kansai Electric is preparing the return of its 830MW number three and four reactors at Takahama following the removal of a legal injunction.
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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