Spanish LNG reloads profitable for the first time this year

21 September 2017 17:19 Source:ICIS
LNG Ship

Rising Asian spot LNG prices have opened up a premium of more than $1.00/MMbtu over Spanish LNG reload prices, providing a financial incentive for reloads from Spanish terminals for the first time this year. However, a lack of gas held in LNG storage sites may hamper LNG reloads.

Asian spot LNG prices have spiked in September on rising demand due to supply delays into the US Sabine Pass facility following Hurricane Harvey. This pushed the ICIS November East Asia Index (EAX) for spot LNG delivered to Japan, South Korea, China and Taiwan to $7.60/MMbtu on 21 September - a premium of $1.03/MMbtu over the Spain FOB reload price at $6.57/MMbtu.

This means a Spanish shipper has a financial incentive to make $0.29/MMbtu to sell a reload cargo to Japan, the world’s largest LNG importer, based on an estimated shipping cost of $0.74/MMBtu and shipping time of 23 days as of 21 September, LNG Edge figures showed.

Apart from favourable pricing to make reloads profitable, there are two factors that will determine whether reloads are possible: spare ships available to charter and having enough LNG stockpiled in tanks.

“We are seeing people trying to aggregate volumes in LNG plants, and we reckoned that it could be to see if some reloads could be done,” one Spanish source said. “We hadn’t seen anything like this in the last year.”

Sources had mixed views on whether Spain has enough gas stocks in reserve ahead of winter to facilitate reloads.

LNG storage tank levels were only at 47% of capacity as of Wednesday, according to Enagas. Natural gas traders have also priced in more risk to fourth quarter contracts, compared to gas deliveries in the first quarter of next year (click here to read story).

“At the same time there are people trying to buy LNG for themselves for November and December delivery,” the trader said.

A second Spanish source said if the price is appealing reloads may happen in spite of low stocks, as shippers may opt to procure gas supply later on.

Both sources agreed that the most favourable time for a reload would be October.

“One week ago or so, it seemed that there was an excess of LNG in October, but a couple of LNG arrivals were cancelled and it seems that the picture has changed a bit,” the first trader said.

The 145,000cbm Methane Lydon Volney was initially scheduled to deliver a Peruvian cargo to Barcelona in Spain, but made a mid-Atlantic course correction to head for Asia.

“Logically, it will stiff the system, and will complicate balancing operations in October, but it is still plausible,” the second source said.

France and other European countries could be looking into the possibility of selling reloads.

Spain executed 72 LNG reloads in 2014, totalling 61TWh. This fell to 28 reloads in 2015 and just 2 in 2016, according to Enagas data. Of the two done in 2016 however, only one was a commercial reload and it was carried out in early January 2016 by Swiss trader Trafigura, in a spot sale to Pakistan State Oil.

The second reload was an intra-portfolio transaction by incumbent Gas Natural Fenosa in July, according to LNG Edge. lorena.ruibal@icis.com

By Lorena Ruibal