21 May 2018 | Alex Froley, ICIS LNG Analyst
Spot LNG markers for June-delivery cargoes gained 10% on the month and 40% on the previous year as the market trended upwards during the four weeks from mid-April to mid-May. The global appetite for LNG remained healthy, with Argentina tendering for its winter supplies, Europe looking to use its summer to fill up depleted storage facilities, and east Asian countries starting to look towards summer peak air-conditioning demands as the market moves on from the April/May shoulder period between seasons.
Despite talk in recent years that the market could face a wave of surplus LNG supplies on the back of new projects entering service in Australia and the US, East Asia Index (EAX) spot prices were in fact at their highest level for the time of year since 2015.
The EAX June average was $7.940/MMBtu, gaining some 40% from the June 2017 average of $5.690/MMBtu. A key driver of the increase was the strength of the oil market over the intervening period, with Brent crude averaging around $12.904/MMBtu in the 2018 period, up around 45% from $8.910/MMBtu the year before.
Many long-term LNG import contracts, particularly in the key import region of east Asia, remain tied to crude oil, so increases in the price of oil will feed into the LNG market, as buyers compare against their long-term contracts when deciding to buy spot or not. If the spot market is cheaper than the long-term contract price, a buyer would aim to secure any additional cargoes needed from the spot market, rather than turning up their long-term contract volumes, which would have the effect of pulling the spot up towards the oil-linked contract price.
Gains were strongest in the second half of April, during which period the EAX rose from $7.500/MMBtu to $8.325/MMBtu. Prices then held largely stable across the first half of May. Northwest Europe Index (NEX) and South America Index (SAX) prices also rose across the month, though those markets remained at a discount to east Asia. South America was stronger than Europe, with regional buyers such as Argentina showing their strongest heating demand in the southern hemisphere winter.
The NEX averaged at $6.952/MMBtu across the four weeks to mid-May, while the SAX averaged at $7.426/MMBtu.
Narrow spreads between regions
As in the previous month, the spreads between regions remained fairly narrow. East Asia was at around a dollar premium to northwest Europe, and around 50 cents over South America. The dollar premium would be sufficient to persuade spare cargoes from the Middle East to head east to the Pacific rather than west to Europe, but would not be much encouragement to reload cargoes from Europe to send to Asia, as the benefit would be outweighed by the extra shipping cost. Cargoes coming out of Russia’s Yamal LNG project could also find Europe an attractive market, as they are currently unable to use the faster eastwards route through the Arctic to China, South Korea and Japan, and so would have a choice between delivering to Europe relatively quickly, or paying for a much longer journey to Asia.
The Dutch Gate LNG terminal did see one reload in the period, aboard the 160,000cbm Maran Gas Mystras, which left Rotterdam on 12 May and headed initially into the Mediterranean.
Russian Yamal cargoes saw a mix of destinations. During mid-April to mid-May there were direct deliveries from the Arctic plant to France and the Netherlands, but the market also saw the first Yamal cargo to be sent to Egypt and a cargo that was transferred for apparent onward delivery to east Asia.
Six cargoes left the new US Cove Point liquefaction plant in the period, including one that was delivered to Aqaba in Jordan on 1 May. The 177,000cbm LNG Sakura departed Cove Point on 22 April with the facility’s first long-term contract cargo for Japan. Meanwhile, the longer-in-service US Sabine Pass plant loaded its first cargo for Israel on 3 May, aboard the 152,000cbm British Diamond heading to Hadera.
PNG returns, Angola out July
Papua New Guinea’s 8.6 million tonnes per annum LNG plant returned one of its two trains to service in mid-April after they were shut following a late February earthquake. The second train was put back in service in May. The plant loaded seven cargoes from mid-April to mid-May.
The UAE’s 5.5 mtpa Das Island facility appears to have undergone maintenance, with only four cargoes loaded in April, down from seven each in February and March, but with volumes picking up again in May.
As of 15 May the 141,000cbm Galicia Spirit was still positioned by the Hilli Episeyo floating production unit offshore Cameroon, apparently still loading the first cargo from the facility. Output from the Cameroon project is contracted to Russia’s Gazprom.
The 5.2 mtpa Angola LNG project has confirmed it will undergo a planned maintenance outage during July.
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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