Sonatrach increasingly selling LNG cargoes fob

: Natural gas
14/06/11

Algerian state-owned Sonatrach is selling more LNG cargoes on a fob basis because of the unavailability of its ageing carrier fleet, shipping brokerage Simpson Spence and Young (SSY) said.

Sonatrach typically delivers on a des basis using its own vessels, with much of its supply contracted under long-term contracts. But its vessels are ageing because issues within the company and the government have delayed renewal of the fleet, SSY senior shipping adviser Debbie Turner said at the FLNG conference in London yesterday.

This has caused Sonatrach to offer cargoes on a fob basis, which may also limit the range of buyers because some do not have shipping capacity. Several vessels operated by Asia-Pacific importers have loaded Algerian volumes this year for delivery to Japan, South Korea, Malaysia, and Taiwan. Sonatrach is unlikely to allow fob cargoes to be delivered to European markets because they would undermine long-term contracts with buyers in countries including Spain, France and Turkey.

Sonatrach operates 10 LNG vessels, of which five entered into operation in 1979-81. The remaining five began operating after 2000. The pre-1981 ships are owned exclusively by Sonatrach — the 129,700m³ Bachir Chihani, 126,130m³ Larbi Ben M'Hidi, 126,130m³ Mourad Didouche, 126,130m³ Ramdane Abane and 125,260m³ Mostefa Benboulaid. The newer ships are held in partnership with Norway's Bergesen, Japan's Itochu and Hungary's Mol.

Pre-1990 LNG carriers are facing an increasingly competitive shipping market, and could be decomissioned in the coming years as newer vessels enter the market. Oversupply has weighed on shipping rates, further reducing the profitability of older, less efficient vessels.

Sonatrach has sought to renegotiate long-term pipeline agreements with European buyers to free up dwindling supply for sale on the more lucrative LNG market. It agreed last year to reduce Italian firm Eni's take-or-pay obligations until October 2014. But rising domestic gas demand has cut the country's gas exports and is beginning "to pose a real problem", chief executive Abdelhamid Zerguine said last month.

Algeria typically delivers to Turkey on a des basis, but deliveries have been delayed in recent years. Turkey had said it would like to renew its long-term supply contract with Algeria, but has asked Sonatrach to take technical measures to ensure deliveries are on schedule. Turkey's 20-year contract with Algeria for 2.9mn t/yr of LNG is due to expire in October.

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