LNG Markets Analysis

Spot LNG continues steady climb on winter demand, tenders

16 November 2017 | Alex Froley, ICIS LNG Analyst

 

Spot LNG prices continued a steady climb in the four weeks from 16 October to 15 November, on the back of growing demand from east Asian buyers, and tender activity from Egypt, India and Pakistan, as well as strengthening crude oil prices.

The ICIS December East Asia Index (EAX) opened the period at $8.900/MMBtu, rising to $9.650/MMBtu by the end. It averaged $9.213/MMBtu over the month, up by 12% from the month before. It was also up by 30% against the same period the year before.

Global LNG Markets for December delivery

The world’s largest LNG buyers in east Asia are entering their winter demand period, drawing more cargoes to Japan and South Korea. KOGAS, the South Korean gas seller, was reported to be making preliminary enquiries for 10-20 cargoes.

China, meanwhile, continues to see rapid growth in LNG imports as it moves to switch heating fuels from coal to gas in order to alleviate air pollution concerns. Data from LNG Edge showed China imported 3.6 million tonnes of LNG in October 2017, up from 2.2 million tonnes in October 2016.

A flurry of tender activity added to the demand pressure in the market. India’s GAIL, GSPC and Bharat Petroleum were all looking for near-term cargoes for the November-January period. Pakistan LNG requested four each for January and February. Mexican utility CFE also came into the market for November and December deliveries.

Egypt’s EGAS ran a major tender to cover its requirements for the first quarter of 2018. It awarded a total of 12 cargoes to suppliers Gas Natural Fenosa, Glencore, Vitol and Trafigura. Nine of the cargoes are to be delivered to the Ain Sukhna port in Egypt, while three will be delivered to Jordan and regasified there, with the gas sent on via pipeline.

Relatively firm prices seen in the tenders, influenced also by the rising price of Brent crude, which broke through $60/bbl in late October, lent strength to the LNG spot market. The number of tenders underway may also have kept some supply out of the spot market, as traders held cargoes in reserve in order to meet positions they had bid for.

However, there were also some bearish signals. Late last year, Egypt had issued a tender for the full year 2017, calling for 68 cargoes, of which nine were ultimately deferred from 2017 to 2018. This year’s tender of only 12 cargoes for a quarter suggests a decline in LNG demand as domestic gas production improves, and with the giant Zohr field due onstream soon, reducing the country’s import requirements. Japan, meanwhile, received its first cargo from Australia’s new Wheatstone LNG project.

South America is now out of its main winter demand period and countries such as Argentina are not expected to be active in the market in the near term. The South America Index (SAX) remained firm at an average of $8.447/MMBtu, but the region is not expected to pull in many spot cargoes.

Within Europe, the Iberian region was the strongest, with an average Iberia Index (IBX) price of $7.503/MMBtu. Spain, in particular, was drawing in a steady string of cargoes from Peru’s Pampa Melchorita plant. Offtaker Shell originally targeted Peruvian cargoes for sale under long-term contract to Mexico, but recently has been diverting most of the output to alternative destinations, while Mexico has been able to take advantage of US pipeline gas and spot cargoes from the southern US Sabine Pass facility.

Reload activity continues

The EAX average of $9.213/MMBtu was almost three dollars higher than the Northwest Europe Index (NEX) average of $6.267/MMBtu. Northwest Europe is well supplied with pipeline gas from producers including Russia, Norway, Algeria and the Netherlands. With the current price of shipping from northwest Europe to east Asia indicated at around $1.700/MMBtu, the premium for spot LNG in Asia is more than enough to cover the cost of reloading a cargo from northern Europe and taking it east. South America and the Middle East have also offered some profitable opportunities to sell reloads into.

The northern French Montoir terminal, which has been receiving regular long-term contract cargoes from Nigeria, has reloaded several vessels recently. The 160,000cbm Cool Runner left Montoir on 29 September to deliver to Brazil, while the 163,000cbm BW GDF Suez Paris left on 13 October to deliver, unusually, to Zeebrugge in Belgium and Gate in the Netherlands. Normally ships would not carry LNG such a short distance across Europe, which is well connected by pipelines for normal gas flows. The deliveries may have been part of a wider swap deal. The 170,000cbm Golar Tundra set off on 28 October and continues on its way to east Asia. The BW GDF Suez Paris then came back for a second reload on 7 November, which it took east through the Mediterranean.

The Dutch Gate LNG terminal reloaded volumes onto the 170,000cbm Hoegh Giant on 14 October, which were taken to India. The 162,000cbm Adam LNG then picked up a cargo from the Rotterdam facility on 26 October and is now rounding the Cape of Good Hope. Meanwhile, the UK’s Grain LNG reloaded the 160,000cbm Cool Voyager on 7 November, which has headed into the Med.

First cargo from Wheatstone

The first of the winter’s new supply projects has now entered the market, opening the possibility of prices softening in coming weeks from their recent highs. Chevron loaded the initial cargo from the first 4.4 million tonnes per annum (mtpa) production train at the Australian Wheatstone liquefaction plant at the end of October. The cargo was delivered to Japan’s JERA around two weeks later.

Asia Venture

LNG Edge shows the route taken by first cargo from Australia’s Wheatstone liquefaction project. The cargo was delivered by Chevron to Japan’s JERA at the Futtsu LNG import terminal on the 160,000cbm Asia Venture, arriving on 12 November.

The first 5.5 mtpa train at Russia’s Yamal LNG is also expected to load its first cargo imminently. The 172,000cbm Christophe de Margerie ice-breaking tanker was at the project’s local port of Sabetta in mid-November. Further new-build icebreaker ships were making their way to the Arctic circle facility for later loadings, including the 172,000cbm Boris Vilkitsky and the identically-sized Fedor Litke. The inaugural cargo from the plant is expected to be delivered to China.

Asia Venture

LNG Edge shows the 172,000cbm Boris Vilkitsy ice-breaking LNG tanker on its way to Russia’s Yamal LNG through the northern sea route.

In the US, the 5.2mtpa Cove Point facility is starting up, a new source of supply into the Atlantic Basin market. Federal regulators on 13 November approved project operator Dominion to export cargoes from the project. LNG is already being produced and the plant is expected to load its first vessel before the end of the year.

Finally, the Hilli Episeyo floating liquefaction production vessel has almost arrived offshore Cameroon, west Africa, where it will operate under long-term charter to gas producer Perenco, targeted to liquefy 1.2 mtpa of LNG for sale to Russia’s Gazprom for eight years. On-site commissioning is expected to be completed by mid-April 2018. alex.froley@icis.com

About the Analyst


Alex Froley
LNG Analyst, Global, ICIS
alex.froley@icis.com
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.

About ICIS

ICIS is the world’s largest petrochemical market information provider, with divisions spanning energy and fertilizers. Our aim is to give companies in global commodities markets a competitive advantage by delivering valuable information and analytics tools which enable our customers to identify and react to opportunities in markets which are constantly evolving. We have more than 30 years’ experience of providing pricing intelligence and news, forecast data, market analytics and independent consulting to buyers, sellers and analysts.

With a global staff of more than 600, ICIS has employees based in London, Houston, New York, Singapore, Dubai, Shanghai, Guangzhou, Beijing, Mumbai, Tokyo, Karlsruhe, and Milan. ICIS’s team of journalists is engaged in reporting market prices and news, and ICIS is fully committed to upholding the highest journalistic principles of verification, corroboration and authentication. ICIS has a compliance framework that along with its methodologies and business processes adheres to the requirements of the IOSCO PRA Principles.  

ICIS is a division of Reed Business Information, part of Reed Elsevier Plc.

 
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