Demand outlook lifts Atlantic basin LNG fob

Market: Natural gas
01/09/14

The Atlantic basin fob index for September loading LNG has recovered from August's lows, amid indications of firmer spot demand.

Prices rose as portfolio players made firm bids for September-loading Atlantic fob cargoes. They were able to take advantage of ample shipping availability and low fob prices, and the possibility of delivering to Asia-Pacific in October. Trading houses also sought September-loading cargoes for floating storage, while Latin American demand was expected to firm for delivery from the fourth quarter.

The Atlantic basin fob index — an average of Argus' Iberian reload fob and west Africa fob assessments — averaged just over $10.40/mn Btu for September loading last month, up from just over $9.80/mn Btu for August loading. Atlantic basin August-loading fob prices had dropped to their lowest since Argus' assessments began because of ample Pacific basin supply and limited spot demand.

Brazil's state-controlled Petrobras was bidding firmly for September-loading Atlantic basin fob cargoes and is expected to need for at least two spot cargoes a month for the rest of the year.

Argentina's state-run YPF will probably issue a tender for delivery of up to five cargoes by the end of this year and perhaps another tender for 2015 deliveries. A tender was expected before the end of August, traders said, which contributed to stronger demand expectations and supported Atlantic basin fob prices.

Sellers of Atlantic basin fob cargoes were able to limit spot availability — capacity holders in Iberian terminals held LNG in storage while waiting for demand from premium Asian buyers to increase later in the year. Offers for Iberian reload fob cargoes remained at a wide premium to bids throughout the month, which lent further support to the Atlantic basin fob index.

One or two September-loading cargoes were available on a spot basis from the 22mn t/yr Bonny terminal in Nigeria. But the sellers of Bonny cargoes had less flexibility than the sellers of Iberian reloads — the loading window for Nigerian cargoes is agreed several months in advance. Two cargoes were also tendered from Trinidad at the end of September.

But further Atlantic basin price increases were capped by the availability of Pacific basin spot cargoes — including from the 6.9mn t/yr Papua New Guinea and Malaysia's 24.1mn t/yr Bintulu plant.

German utility Eon and trading houses Glencore and Vitol chartered new-build LNG vessels for use as floating storage — the cost of which is estimated at about $1/mn Btu/month. Such economics make the strategy profitable if an Atlantic fob cargo can be purchased in the mid-$10/mn Btu fob range in September and sold in the mid-$14/mn Btu des range by the end of December.

And with the northeast Asia delivered price for the second half of November trading at $14.75/mn Btu today, floating storage plays could prove profitable.

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Demand outlook lifts Atlantic basin LNG fob

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