21 September 2016 | Ludovic Aldersley, ICIS LNG Analyst
Stronger bearish pressure at European gas hubs has trumped world-wide falls in spot LNG prices allowing LNG re-exports in an already well-supplied LNG market.
The ICIS October South America Index (SAX) was assessed for the final time at $5.31/MMBtu on 15 September, having fallen $0.33/MMBtu since becoming the front month on 16 August. It went from being assessed at a premium to a discount to both the ICIS East Asia Index (EAX) and Middle East North Africa Index (MENAX).
Only gas hubs in Europe fell by more providing scope for LNG traders to still re-export at a profit, particularly to destinations in the Middle East. Volatility in month-ahead European gas, as well as LNG markets, saw the MENAX premium to the ICIS Northwest Europe Index (NEX) range from $1.23/MMBtu to $1.77/MMBtu.
The first signs of a lengthening LNG market came in mid-August when Argentine state-owned buyer, ENARSA, began to reschedule recently contracted delivery slots with suppliers. Weaker than expected downstream gas demand meant near-term slots were pushed back to 2017 and led to as many as four suppliers having to rethink destinations in the spot market.
Seller sentiment in South America further deteriorated when buying consortium, GNL Chile, opted not to award a December cargo that it sought through a late August tender. This came on the back of it turning down offers for a tendered September cargo earlier in the month.
The lack of appetite from South America helped put buyers elsewhere in the driving seat. Buyers from Japan, Korea, China, and Taiwan all became more active and increasingly competitive pricing led to further spot transactions in India, Kuwait and Turkey.
Signs of potentially significant prompt demand in Egypt and Pakistan failed to materialise helping keep a sense of relative oversupply. With pressure on sellers, prices slid over the period but with numerous alternative buyers waiting in the wings, the downward trend was kept within a narrow band.
Japanese buyers concluded October volumes at the end of August at a small discount to Indian buyers who had purchased only four-five days earlier.
Supply from most LNG production centres around the world held steady, while plants in Indonesia, Australia, and Papua New Guinea held tenders over the period to sell excess into the October market. A force majeure on feedgas supplies to the Nigeria LNG plant since 10 August was lifted on 7 September. Data from ICIS LNG Edge shows that, as of 16 September, four more cargoes have been loaded from Nigeria within the last 15 days compared to the previous 15 days. Despite lengthening supply and spot prices falling, LNG traders in Europe could still consider Europe as an economically competitive source of supply in the October market. With the Dutch TTF October ’16 contract trading around €12.00/MWh ($3.95/MMBtu), at least one trader has probed the shipping market to re-export from northern Europe in early October.
By Ludovic Aldersley
LNG Analyst, Global, ICIS
Ludovic Aldersley has been involved in energy for eight years, and in LNG specifically, for over five. After spending two years in the upstream commercial department of a large gas producer, he switched to cover LNG for the market intelligence and price reporting agency, ICIS, formerly known as Heren.
From reporter to deputy editor of the flagship LNG publication, he covered all aspects of the global LNG value chain, from long-term sales and purchase agreements (SPA) to the single-cargo delivered ex-ship (DES) and free on board (FOB) spot market. Within the value chain, his specialisation has been on LNG shipping and the charter market.
From investigative journalism to analyst, he has become responsible for the improvement and maintenance of an analytics platform that launched in 2015 which fuses together three core strengths within ICIS Energy.
Ludovic 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, 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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Bearish European gas hubs keep re-load option open