17 July 2017 | Alex Froley, ICIS LNG Analyst
Global spot LNG markers have been holding steady over the past month with the market looking comfortably balanced for supply/demand during the summer lull.
Meanwhile the US is looking to assert its energy dominance through LNG exports, Qatar aims to hold its position as the world’s biggest exporter, and Europe and Japan are planning to increase cooperation.
The world’s largest LNG importers – including Japan, South Korea and China in east Asia, and Spain and the UK in Europe – all share the northern hemisphere winter, and so their gas heating demand falls between April and September.
These are the winter months for the southern hemisphere, but while South American buyers have increased demand, the impact is far less strong. Argentina, Brazil and Chile’s combined consumption across 2016 was only a tenth of Japan’s, at 8.4 million tonnes against 82.7 million tonnes.
The ICIS August East Asia Index (EAX) for spot LNG averaged $5.515/MMBtu during its period as the front-month assessment, from mid-June to mid-July. This was largely unchanged from the previous month, up just 1%, and up 2% from the same month of the previous year. The ICIS South America Index (SAX) was similarly flat, averaging at $5.250/MMBtu, while the Northwest Europe Index (NEX) averaged at $4.556/MMBtu.
Mexico’s CFE has been in the market over the last month, needing cargoes to meet its increasing demand while awaiting the launch of new pipeline links to the US. CFE tendered for nine cargoes to be delivered during June to August, awarding six to Shell, two to Cheniere and one to Gas Natural Fenosa. Most of the volume is expected to come from those companies’ offtake from the nearby US Sabine Pass liquefaction plant.
Across the Atlantic, Turkey’s BOTAS issued the other large tender of the period, looking for 19 cargoes for November to March, though this delivery period has no impact on near-term spot market prices.
Reduced production over the last month from Australia’s North West Shelf project and from the US Sabine Pass facility due to maintenance issues failed to push up prices, with major importers holding healthy stock levels to cover any disruption. North West Shelf loaded 18 cargoes in the four weeks to July 14, down from 22 cargoes during the previous four weeks. Sabine Pass loaded 13 cargoes, down from 16 the month before.
Trinidad & Tobago exports fall
Trinidad & Tobago’s Atlantic LNG has seen declining exports in recent years, struggling with reduced availability of feed gas for the liquefaction plant. The company announced last month it would look to cut around 50 staff, or 7% of its workforce. The project mainly supplies LNG to customers in the Americas, although cargoes have also been supplied to Europe, the Middle East and east Asia this year.
Egypt’s Idku plant, on the other hand, loaded its seventh and eighth cargoes of the year in mid-June and mid-July, having only loaded nine across 2016 as a whole and none in 2015. Egypt’s domestic gas production is increasing, with projects like BP’s West Nile Delta coming in ahead of schedule, freeing up more volume for liquefaction and export.
Malaysia’s Petronas was heard to be offering additional cargoes to the market, while gas availability for Indonesia’s Bontang plant has been boosted by the start-up of the Jangkrik field. On the buy side, South Korea has not been particularly active despite halting some 2.7GW of coal-fired power generation capacity in June to reduce air pollution, which some had expected would spur additional purchases for gas-fired generation.
Meanwhile, work is underway to commission a fourth 4.5 million tonnes per annum (mtpa) liquefaction train at the US Sabine Pass facility, and a first 4.45mtpa train is due onstream at Wheatstone in Australia in August, set to further boost global supply. On the consumer side, the arrival of a second floating storage and regasification vessel at Pakistan’s Port Qasim, originally expected in June, has been pushed back by a couple of months.
Global prices, in addition to being steady, are also much closer together than they were in winter, reducing the incentive for cross-basin trade. There were two European reloads over the last month. Germany’s Uniper delivered a cargo from the Dutch Gate terminal to Sagunto in Spain at the start of July and France’s Engie dispatched a cargo from the French Montoir terminal to Qidong in China. In both cases, however, the companies were likely reloading their own volumes rather than procuring in-tank volumes from third parties.
More US cargoes for Europe
The UK received its first LNG cargo produced at the US Sabine Pass plant at the Isle of Grain terminal on 8 July, a month after the first Sabine Pass volumes reached northern Europe at the Dutch Gate and the Polish Swinoujscie terminals. The UK had previously received volumes reloaded from the US, but not produced in the US, in December 2010 and April 2017, as well as test volumes of US-produced LNG in early industry trials in 1959.
US President Donald Trump visited Poland on 6 July and expressed hopes that Poland would soon have a long-term import contract from the US to follow its June-delivered spot cargo. Meanwhile, Lithuania is expecting two US spot cargoes in August and September, delivered by Sabine Pass offtakers Cheniere and Gas Natural Fenosa.
Qatar on 4 July announced plans to expand its export capacity by 30% to 100mtpa within five to seven years by increasing the size of a new gas project in the southern sector of the North Field. The news roughly doubled an increase that had been previously proposed in April and could enable Qatar to secure its title as the world’s biggest LNG seller in the face of growing competition from Australia and the US.
Finally, with new supplies offering increased choice to buyers, importers have been looking to leverage their bargaining power by obtaining greater freedom to divert surplus cargoes. Japan’s Fair Trade Commission came out with a ruling on 28 June against the inclusion of destination clauses in new contracts. Destination clauses fix the end-destination of a cargo and prevent a buyer from diverting it elsewhere. “There need to be more ways for Japanese end-users to resell LNG beyond reload activities,” said JFTC director Shinji Kakiuchi.
The ruling is reminiscent of battles fought by the European Commission over the past two decades to open up the European gas market, and allow LNG supplies and Russian and Norwegian pipeline volumes to be traded freely between countries, regardless of their original point of import. Japan and Europe will be able to compare their experiences further after the commission and Japan signed an agreement on 11 July to cooperate in establishing “a liquid, flexible and transparent” global LNG market.
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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