Market Report: Low July-August prices attract interest

19 June 2014 

Spot LNG prices were at more than three-year lows this week with sell tenders from Australia and Russia as well as cargoes from Indonesia contributing to the ongoing length across the global market.

Despite reports of low demand and oversupply in northeast Asia, low prices lured in Japanese buyers who were heard to have secured two of the three cargoes from Russia’s Sakhalin-2 sell tender.

An Australian sell tender and Argentinean buy tender which engaged a number of companies have both been finalised. State-run buyers ENARSA and YPF received offers from at least six companies for two August cargoes at Escobar. Several sources indicated Brazil’s Petrobras was the likely winner for both slots with prices in the mid $12.00s/MMBtu.

In Australia, BG was heard to have won one of the three cargoes from the North West Shelf (NWS) tender. The tender closed on 9 June with availability either on a DES or FOB basis for one cargo in July and another in August. Some sources said another NWS tender may soon be unveiled but this was not confirmed at source.

The ICIS East Asia Index (EAX) fell to $11.963/MMBtu for August by 19 June, the first time the front month has been assessed below $12.00/MMBtu since April 2011. Buying interest has also been predominantly muted from South America, with the corresponding index, the SAX, at $12.23/MMBtu, a small premium to its Asian counterpart.

The ongoing global length saw netback values reduce from key selling regions. Any potential sales from Algeria and Nigeria to East Asian destinations would see front-month netbacks of around $9.50/MMBtu, according to ICIS data, compared with over $11.00/MMBtu into Brazil and Argentina.

Statoil this week confirmed that its Norwegian Snohvit production facility had successfully restarted after a planned shutdown that started in early May.

Front month oil prices rose this week to their highest level in more than nine months as Brent crude traded around $114/bbl.

Low prices attract interest

In Japan, the ICIS front month assessment fell below $12.00/MMBtu this week, the lowest price for over three years, and down from the 2014 high of $20.15/MMBtu recorded in February.

While Japanese demand has been extremely soft in recent weeks, the award of two of the three tendered cargoes from Sakhalin for two Japanese power utilities showed buying interest is present, albeit at the right price. The cargoes were heard to have been sealed at $12.00/MMBtu on a delivered-ex ship (DES) basis.

The number of uncommitted cargoes available on the market, however, continues to mount downward pressure on Japanese price assessments with Indonesia’s Pertamina trying to negotiate the sale of 10 cargoes over the coming months.

Pertamina was understood to be the winner of a buy tender from Thailand’s PTT for two cargoes, for delivery in July and early August.

KOGAS pushes on at Samcheok

After all the talk of cargo length in South Korea, KOGAS this week said it was on track to commission the initial phase of its new LNG terminal in late July. Three of the first nine 200,000cbm storage tanks that form the first part of the project will be commissioned next month. The second phase will see three additional storage tanks added, each with capacity of 270,000cbm.

After China, South Korea saw the largest annual increase in gas demand last year, BP said this week, up by 7.8% to 50 billion cubic metres (see separate story).

Traders continued to speculate over KOGAS’s success in arranging time swaps for 30-40 term cargoes that it could not house domestically. But there remains little incentive for other Asian buyers to take cargoes given the current market length.

Sporadic from South America

Aside from the Argentina buy tender taking centre stage in South America, there were signs that opportunistic demand could appear from its neighbours, although this was based on falling prices rather than any clear upturn in demand.

Temperatures in Argentina have been mild so far this winter with rainfall above average. But the steady downward erosion of prices across South America has encouraged ENARSA and YPF back into the market.

Puerto Rican utility EcoElectrica was understood to be in the market for one spot cargo for delivery in late July and another for late October. The company typically receives most of its LNG from parent company Gas Natural Fenosa on a long-term basis but does at times enter the spot market.

While Chilean buyers were understood to be considering entering the spot market, recent rain triggered by the El Nino phenomenon could offset the need for gas for fuel generation with hydro generation boosted.

Indian tanks are full

Indian buyers have been delaying LNG arrivals into Dahej and Hazira due to a lack of available capacity and low demand from downstream customers. The move ties in with the typically lower demand period over the monsoon season. The Dabhol facility was understood currently to be out of service.

While demand is expected to stay low this month, interest could return in July and August for a limited number of cargoes from companies such as GAIL and Reliance. Reliance has captive LNG demand for its refinery in Gujarat.

European reloads

Questions persisted over the profitability of reloads from European markets with reload prices from Spain and Zeebrugge assessed at year-low levels.

A total of five reloads are reportedly booked for July from Spain, operator data showed.

While margins may be thinning, stock levels at European terminals have been supported by deliveries from Qatar and Nigeria. 

BP has scheduled to lift a 126,000cbm cargo from Ferrol aboard its British Diamond between 20-22 June, Spanish grid operator data showed. The prompt reload follows on from the arrival this week of Qatari LNG delivered through a back-haul sub-charter of the Castillo de Villalba.

The Stena Blue Sky meanwhile which is usually under the control of PETRONAS is due to deliver Nigerian volumes into Spain on 25 June.

Bilbao this week was confirmed as the last of the six LNG facilities in Spain that will convert to allow a reload service (see separate story).

In Northern Europe, BG has purchased volumes from Eni at the Zeebrugge terminal. The Gaslog Skagen is scheduled to pick up from the Belgian terminal on 29 June and will then head to Incheon for 22 July, according to port data.

The nearby Gate LNG terminal in the Netherlands is shortly expecting the arrival of Norwegian volumes. Gate capacity holder, DONG Energy will receive the cargo aboard the Arctic Voyager through its contract with Spain-based supplier Iberdrola.

North African supply 

Amid ongoing production issues at Egypt’s LNG export plants, BG has delivered an Idku cargo lifted in late May to Japan this week. BG which declared force majeure (FM) on supplies to the two-train Egypt LNG plant in January had earlier said it expected to lift only one cargo from Egypt over the second quarter. Following the FM declaration only one cargo was lifted in the first quarter by co-offtaker, GDF SUEZ.

Supply from neighbouring Algeria by contrast appear to be strong with the sub-chartered Soyo arriving at Arzew shortly after the BW GDF SUEZ Brusselson 19 June, according to ship data.

The Eni-controlled Golar Maria meanwhile is en route to the Japanese terminal of Naoetsu – controlled by refiner INPEX, with Arzew volumes it lifted earlier this month. The vessel is scheduled to arrive into Japan on 4 July.

Charter rates move up

Prompt charter rates were assessed higher this week as a result of Nigeria LNG’s need for three ships to lift cargoes in quick succession at the end of June and early July. The cargoes are understood to be for delivery into Spain, Kuwait and Japan. The Angola LNG project, as well as three independent ship owners, Excelerate, Golar, Cardiff Marine, are expected to offer tonnage with NLNG said to be stipulating ship sizes in excess of 145,000cbm.

With the Angola LNG plant down until mid-2015, the seven-strong 160,000cbm west African fleet which includes both steam-turbine and more efficient duel fuel diesel electric (DFDE) ships are strong candidates to be used by NLNG. As one Angola vessel remains off-hire in the Pacific, two are currently on sub-charter, there are four that are available for the prompt NLNG liftings. The neighbouring LNG exporter has used Angola tonnage several times in the past.

According to ship data, NLNG currently has two ships at El Ferrol in Spain for maintenance - the 1976 build LNG Lagos and the 2008-build LNG Imo.

Further out, a number of cold duel fuel diesel electric ships are due to become open in the Pacific in July which may put pressure on DFDE rates in due course. The 156,000cbm Wilpride, 160,000 Golar Seal, and 155,000cbm Clean Ocean will all be coming open for business in east Asia sequentially from the end of this month over the following four weeks.

The 151,000cbm Explorer was understood to be now off hire following an engine fire on 14 June at the Indian Dahej terminal. The vessel had completed its delivery of an Algerian cargo on behalf sub-charterer GDF SUEZ. An Indian source said the vessel was likely to be towed to Yemen.

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