19 September 2017 | Alex Froley, ICIS LNG Analyst
Global spot LNG prices started to climb sharply in the second week of September as portfolio suppliers bought cargoes to make-up for delayed loadings from the US Sabine Pass facility following Hurricane Harvey, and the market’s focus started to switch towards the northern hemisphere winter, when the world’s largest LNG buyers such as Japan, South Korea and Europe will see the peaks of their demand.
The ICIS October East Asia Index (EAX) for spot LNG delivered to Japan, South Korea, China and Taiwan averaged $6.346/MMBtu during 16 August to 15 September, up 9% from the previous month and up 16% from the October index last year. The EAX traded fairly flat in late August and early September, in a range from $6.050/MMBtu to $6.350/MMBtu, but made rapid gains in the last week of the period, breaking through $7.000/MMBtu by its end.
The four-train, 18 mtpa US Sabine Pass facility halted loadings for two weeks from 24 August to 8 September due to the after-effects of Hurricane Harvey. The actual plant suffered no damage, and liquefaction of pipeline gas was able to continue, but the torrential rain in the region raised water levels in local waterways, preventing ships from safely berthing at the jetty. A backlog of tankers built up off the coast of the Gulf of Mexico, unable to enter the ship canal to the terminal.
Cargoes diverted to Asia
Suppliers looked to compensate for the loading slowdown by carrying out diversions or buying spot cargoes elsewhere to ensure they still had supplies to make the deliveries that had been expected from Sabine Pass.
Two vessels controlled by the biggest portfolio supplier, Shell, seemed to divert off their initial course. The 161,870cbm Maran Gas Sparta was heading north from Equatorial Guinea, perhaps to Europe, in late August, but made an about-turn on 31 August to start heading south around the Cape of Good Hope and then east to Asia. The 145,000cbm Methane Lydon Volney was initially scheduled to deliver a Peruvian cargo to Barcelona in Spain, but also made a mid-Atlantic course correction to head for Asia. Shell was also said by market sources to be buying spot cargoes available in the Pacific basin, including from the Australia Pacific LNG project and the Gladstone LNG project in Australia.
The 165,500cbm Meridian Spirit, meanwhile, was carrying the last cargo to leave Sabine Pass before the hurricane, and was initially expected to deliver to Tobata, Japan, according to signal broadcasts from the ship. But after transiting the Panama Canal on its way to east Asia, the ship instead delivered into the Manzanillo regas terminal on the west coast of Mexico, to meet a requirement for a spot delivery to utility group CFE. Manzanillo can normally be easily supplied with Sabine Pass cargoes, but with the facility going out of action, traders opted to keep the Meridian Spirit close to home rather than sending it on to Japan.
Argentina tenders for cargoes
The ICIS South America Index (SAX) for October was at a discount to the EAX for most of the period, also largely flat in the early weeks, before starting to rise. The exception was a brief spike upwards in prices around 22 August reflecting the results of a tender carried out by Argentina’s ENARSA to procure cargoes for September and October delivery. US Gulf free on board (FOB) assessments increased at the same time. The SAX averaged $6.077/MMBtu for October and the US Gulf FOB price averaged $5.672/MMBtu.
The North West Europe Index (NEX) traced the same path as the other indices, but showed the largest discount to the EAX. The NEX averaged $5.516/MMBtu for October delivery, some $0.830/MMBtu below the EAX average for the period.
The low spot prices in northern Europe were reflected in the limited volumes delivered. For example, the UK’s South Hook LNG import terminal received just one tanker during 16 August to 15 September in 2017, against six across the same days in 2016. However, there were signs of an increase in shipments headed towards the region for late September and onwards.
Poland received a spot cargo from Norway on 9 September, following previous spot cargoes from the US in June 2017 and from Norway in June 2016. Poland takes most of its LNG on long-term contract from Qatar, but is looking to become more active in spot trading.
The Dutch Gate LNG terminal is due to receive its second LNG cargo from the US on 6 October, aboard the 173,400cbm Ribera del Duero Knutsen.
Italy’s Adriatic LNG terminal received its first US cargo on 11 September. Two US cargoes have previously been delivered into Italy, in June 2017 and December 2016, but these were both to the Offshore LNG Toscana terminal, rather than the Adriatic terminal that normally receives Qatari LNG.
New supply enters the market
Although demand is expected to increase in the coming months as major buyers enter winter, there are new sources of supply entering the market too. Egypt has seen significant improvements in its domestic gas production, which is expected to reduce its demand when the country comes out to tender for its annual requirements this year, perhaps to only around a quarter of last year’s levels.
The Sabine Pass facility now has four 4.5 mtpa trains available. The plant has not yet operated at full strength, because of the loading delays, and because train three was also undergoing maintenance recently, but should step-up output in the coming months.
Meanwhile, Chevron is expected to load the first cargo from the first 4.4 mtpa train at its Australian Wheatstone liquefaction plant in late September. The 160,000cbm Asia Venture left Japan on 10 September heading to the Wheatstone plant, and is expected to arrive on 24 September, according to ship signal data captured by LNG Edge.
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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