LNG Spot Prices Drop; Demand Dips from Brazil, Japan

Friday, February 28, 2014

By Oleg Vukmanovic and Jacob Gronholt-Pedersen,  Reuters

Asian spot liquefied natural gas (LNG) fell this week as demand from Brazil's Petrobras slackened and top Japanese buyers switched to cheaper fuels and relied more on supplies under long-term deals.

Prices for April delivery dropped to around $18.10 per million British thermal units (mmBtu) from $19.60 per mmBtu last week.

Petrobras, a major Atlantic Basin LNG buyer in recent weeks, withdrew from the global spot market after rainfall boosted Brazil's hydroelectric reserves and cut demand for gas-fired power generation, traders said.

Japanese utilities, meanwhile, increased deliveries of lower-cost LNG under long-term, oil-linked deals.

"Prices would rebound quickly if Petrobras had to come back into the market," a trade source said in light of finely balanced supply-demand.

"There is no additional supply available," he added.

Spot cargo trades were scant over the past week, resulting in a wide bid-offer spread of almost $2 per mmBtu, the same source said.

"The Asian buyers have already secured the necessary winter volumes ... not only for spot deals but also (through) short-term deals," Chubu Electric Power's head of trading, Hiroki Sato, told Reuters this week.

"In Chubu's case, if the spot price jumps above $18 (per mmBtu), it is better to buy oil," he said.

Sato added that Chubu did not expect LNG demand to rise this summer due to the probable restart of some of Japan's idled nuclear reactors.

Cargo Deals
German utility RWE appears to have bought a Norwegian LNG cargo from GDF Suez, which it has sold to Japanese utility Tokyo Electric Power, or Tepco, several sources said.

Portugal's Galp sold a cargo to Brazil's Petrobras for loading in mid-April at an estimated price in the mid-$16 per mmBtu level.

Galp's offer to sell 30 LNG cargoes over a five-year period closes in March, by which time traders have to submit bids.

Up to three cargoes due to be re-exported from Belgium's Zeebrugge and Spanish terminals in April will add to global spot availability, another trader said.

Malaysia's state-run Petronas is in advanced talks to buy 18 LNG cargoes from Algeria over a three-year period, sources with knowledge of the discussions said.

The move underscores Algeria's growing shift towards higher-margin LNG sales after halving pipeline exports to Italy last year.

A compressor leak at Angola's new export plant has delayed loading programmes and reduced output at the $10 billion project, which is due to shut for two months from July, a site manager said earlier this week.

Delays caused by a leaking valve at an air compressor unit have meant that LNG initially due to start being pumped aboard a waiting vessel on Tuesday this week has been pushed back to Monday next week.

Meanwhile, Gazprom Marketing & Trading has won a tender to deliver an LNG cargo to Argentina in early April, traders said.

Argentine state-run energy firm Enarsa issued a tender for two LNG cargoes to be delivered in April earlier this month. Out of two to three offers Enarsa received, it only awarded the single slot at the start of the month, a source said.

(editing by Jane Baird)

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