Emerging trends in LNG market calls for increased flexibility
At the recent fourth annual liquefied natural gas (LNG) Producer-Consumer Conference in Tokyo, industry participants called for increased contract flexibility dominated discussions following the emerging trends in the LNG market. The focus of discussions increasingly turned to the still-restrictive terms around LNG delivery schedules and destinations.
Numerous industry observers saw the removal of destination clauses, take-or-pay terms and the use of more upward and downward quantity tolerance in contracts as the key components that will be necessary to manage the looming supply glut in LNG. Asia’s LNG market is coming out of half a decade of tightness, and as output soars, merchants are sweeping up excess cargoes to trade to Asian utilities that are switching from long-term supply deals to do more spot trading.
“Buyers face difficulties in managing supply as the demand decreases. In this regard, I am sure more flexible take-or-pay or destination clauses will go a long way to increasing the trade,” said Jae-do Moon, South Korea’s vice minister for trade, industry and energy.
“We need to take recent changes in the market as a chance to do away with the destination clause once and for all. The result will be a fairer and sounder LNG trading relationship for all parties.”
Similar calls for increased flexibility around pricing indexes that had dominated the industry in recent times are now being met, at least in part, though, this alone appears to have done little to entice buyers back to negotiation tables for long-term contract volumes.
Most remain reluctant to lock in volumes further down the curve in the current low oil price environment as both demand projections and the development of the wider LNG market are murky.
The lack of new projects sanctioned has prompted sellers to caution buyers that shortages are looming unless they act soon.
Nigeria LNG should drive Train 7
The Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGAS SAN) has urged the board of the Nigerian Liquefied Natu ral Gas (NLNG) to ensure the completion of the Train 7 project as it will, in addition to attracting over $10 billion Foreign Direct Investment (FDI), position the company for competitiveness in global gas market.
It is therefore imperative that NLNG increases its production in order not to lose more market share. This week, NLNG cargo heads to Jordan. The 148,300 cubic metres capacity carrier “LNG Ogun” was unloading a cargo of Nigerian LNG at the Jordanian import facility, which is a floating storage and regasification vessel deployed in May 2015 at the port of Aqaba, according to shipping data.
NLNG is also to sell a cargo loading later this month to Brazil’s Petrobras, trade sources said. The cargo, due to load from the plant on September 22-24, was sold at a price estimated by some traders to be around $6.60 per million British thermal units, though, other traders said the price may have been lower.
Glencore vies for market share with Trafigura, Vitol
Glencore is mounting a challenge to Trafigura and Vitol to become the top merchant trader of liquefied natural gas (LNG), as a market in which sales are largely frozen in decades-long contracts looks set to thaw.
Trafigura recently adopted tactics developed from years of trading oil to become the world’s top LNG merchant, investing in logistics and storage, while also providing credit and shouldering risk for buyers.
Glencore, on the other hand, plans to double its global LNG trading team and trade as many as 50 cargoes of the super-chilled fuel over the next year – almost twice what Trafigura traded in its fiscal year to September 30, 2014.
Glencore – which has had a limited presence in LNG up to this point – plans to trade some 40 to 50 cargoes on spot or short-term deals over the next year and double the size of its three-trader team based in Singapore, London and Madrid.
With spot and short-term deals accounting for some 25-30 percent of the 260 million tonnes expected to be sold globally this year, Glencore’s share of the traded volumes, if it were to handle 50 cargoes, would be roughly 5 percent, according to calculations by Credit Suisse.
Eni plans a hub for East Mediterranean
Italy’s Eni aims to pull together its east Mediterranean gas empire headed by a giant Egypt find, into a major hub to supply Europe.
Eni, the biggest foreign oil and gas major in Africa, wants to use its deep ties with Egypt and Libya to help create the export hub for liquefied natural gas.
It expects Libyan gas to flow into a hub when conflict abates, hopes to attract other producers seeking an export outlet from Israel and accelerate plans to send Cypriot gas owned by other companies into the facility, likely to be located in Egypt.
The project would help diversify gas supply to Europe, now dependent on Russia for about a third of its needs, but faces long odds given the region’s mix of political disputes, conflict zones and state involvement in energy policy.
Its scope of tying together a multi-national gas supply network may be unprecedented. Pipelines would need to be built linking the various gas deposits scattered across the region to an LNG plant.
FRANK UZUEGBUNAM