The firm has signed several supply deals in recent months but may still have capacity available, writes Antonio Peciccia
Adnoc Gas' deal with Japanese utility Jera last month is the latest in a string of LNG supply contracts signed by the Gulf producer this year. But the scant details provided make it difficult to gauge whether the selling spree is set to continue.
In total, the Mideast producer has signed five LNG supply contracts so far in 2023. Before the deal with Jera was announced in October, it had signed contracts with TotalEnergies, India's state-controlled refiner IOC, Japanese upstream firm Japex and China's state-owned PetroChina. These followed a November 2022 initial agreement between the UAE and Germany that pledged to reserve an unspecified number of cargoes for German customers this year, including a commissioning cargo for the 4.7mn t/yr Brunsbuttel terminal.
With the exception of the IOC deal, for all the other contracts the firm did not specify a start date or a contractual volume, sharing only an estimated total value. Based on this, Argus analysis suggests the firm still may have uncontracted capacity at its 6mn t/yr Das Island liquefaction terminal, at least until the IOC deal starts in 2026. Assuming all the recent contracts use an oil-indexation formula with a 12pc slope and based on the value of the Brent front-month contract at the time of the respective announcements, they would equate to 5mn t of LNG spread over multiple years — three years for TotalEnergies and five for Japex, while for the other two deals, no duration was specified. This may leave Adnoc Gas with a sizeable share of production capacity still available. At the time Russia invaded Ukraine in February 2022, sparking a global reconfiguration of LNG trade flows, Adnoc LNG — which later merged with the parent company's gas processing business to form Adnoc Gas in December 2022 — was about to roll off a number of short-term contracts for Das Island supply covering the entire terminal capacity, leaving a 1.8mn t/yr contract with Vitol the only term contract known to be in place as of April 2022.
Strategy shift?
It is unclear whether the firm is considering making any adjustment to its commercial strategy on LNG, which has already changed significantly in recent years.
Until March 2019, the bulk of Das Island's output — 4.3mn t/yr — was tied to a single long-term contract originally signed in 1977 by Tepco, which merged with fellow Japanese utility Chubu Electric to form Jera in 2015. As the deal approached expiration, Adnoc LNG began a transition to a new business model and between 2018 and 2020 signed a number of short-term contracts with several international firms — including Jera, BP and TotaleEnergies — for a total volume broadly in line with its production capacity. At the time, the firm noted that the shorter duration of these contracts — all set to expire in March 2022 — would enable the firm to "quickly respond to changing market dynamics".
None of the contracts in force until March 2022 are known to have been extended. Having substantial volumes readily available for spot deals, at a time when Europe's scramble for LNG pushed spot prices to unprecedented highs, would be hugely beneficial for the firm. Yet only a couple of Das Island cargoes physically reached Europe in 2022-23, ship-tracking data from oil analytics firm Vortexa show, while India continued to absorb more than half of the terminal's output, in line with previous years. Still, Adnoc Gas' revenues rose by 27pc in 2022 from a year earlier.
A buyers' push for shorter and more flexible deals was common in a well-supplied market at the end of the last decade. But while destination flexibility probably remains a paramount requirement, concerns about security of supply may have made buyers keener to sign up for longer terms. Data from LNG importers' association GIIGNL show the average duration of term contracts signed in 2022 rose to 17.8 years, from 13.6 years in 2021 and the highest since at least 2015.
